14 hrs ago
Midterm Elections Could Test the Stock Market’s AI Rally
The U.S. midterm elections choose members of Congress and may affect businesses that build artificial-intelligence systems.
Technology stocks have helped keep the stock market strong recently.
Much of that strength comes from excitement about AI.
Some voters and local officials are worried that data centers use too much energy and may hurt nearby communities.
These concerns could lead to new rules or delays for data-center projects.
New rules might increase costs and reduce profits for AI-related companies.
Analysts say this would probably be a problem for stock prices, but not necessarily destroy the AI boom.
Normally, stock markets tend to perform well after midterm elections.
This election could be more important because the market depends heavily on a small group of AI-related stocks.
The U.S. midterm elections are scheduled for Nov. 3 and could increase market volatility.
Technology stocks have powered the S&P 500’s recent resilience, with the Technology Select Sector SPDR ETF up 4.3% this month.
Analysts warn that anti-AI and anti-data-center sentiment could produce regulations delaying projects and raising costs.
About half of Americans view data centers negatively for the environment, household energy costs, or nearby quality of life.
Historically, stocks have generally risen after midterm elections, but analysts say AI-related political risks could make this cycle different.
- Who
- U.S. voters, policymakers, investors, and companies involved in artificial intelligence and data centers.
- What
- The upcoming midterm elections could affect the stock market by influencing regulation of AI and data-center expansion.
- Where
- Across the United States, particularly through local and state decisions affecting data centers.
- When
- The elections are slated for Nov. 3; related market and political effects are being assessed ahead of the vote.
- Why
- Anti-AI and anti-data-center concerns could lead to project delays, higher costs, lower profits, and pressure on AI-related stocks.
AI Regulation Risks
Historical Market Resilience
Effect of election results
AI Regulation Risks
Anti-AI and anti-data-center sentiment could produce local and state regulations that delay projects, raise costs, compress margins, and pressure AI-related stocks.
Historical Market Resilience
Midterm elections have usually created temporary volatility rather than lasting changes in market direction, and equities have generally risen regardless of the political outcome.
Threat to the AI trade
AI Regulation Risks
Because a small group of AI-related stocks has driven much of the S&P 500’s gains, regulatory setbacks could expose broader market weakness.
Historical Market Resilience
Analysts cited in the article expect anti-AI concerns to create a sentiment challenge rather than derail capital spending or end the AI trade.
Importance of data centers
AI Regulation Risks
Public opposition could make data centers an affordability and quality-of-life issue, increasing pressure for restrictions.
Historical Market Resilience
Even if new rules are enacted, they may be more inconvenient and costly for hyper scalers than fatal to their expansion plans.
Key facts
- Election date
- The U.S. midterm elections are slated for Nov. 3.
- Recent technology performance
- The Technology Select Sector SPDR ETF has gained 4.3% this month, while the S&P 500 has been roughly flat.
- Data-center sentiment
- Pew Research found that 54% of Americans view data centers as mostly bad for the environment.
- Energy-cost concerns
- Pew Research found that 50% of Americans view data centers as mostly bad for home energy costs.
- Historical volatility
- The Cboe Volatility Index has averaged above 20 in election years versus below 19 in nonelection years since 1990.
- Post-midterm performance
- The S&P 500 has posted positive returns in the year after a midterm election in 95% of cases since 1950, according to Fidelity.
- Market concentration
- Goldman Sachs said the median S&P 500 stock was 16% below its 52-week high and that market breadth was at its lowest since the dot-com bubble.
Quotes
Ross Mayfield
Baird investment strategist
“The biggest risk to the market from the midterms is that there’s enough anti-data center pushback at the local and state level to result in a slowdown or a delay of projects that a lot of the bull market is built on”
livemint.com
“Right now, affordability is a key issue and the easy scapegoat here is going to continue to be an AI capex spend and putting it on a pedestal [as] the main reason for affordability problems”
livemint.com
Sources
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