Markets realise they hate America’s blue wave

After a firmer post-election session on 4 November, investors concluded that the Democrats’ midterm “blue-nami” was bad for AI. The S&P 500 fell 4% and the Nasdaq more than 5%. In Texas, destination for around a third of the new data-centre capacity planned in America over the next two years or so, Democratic governor-elect Gina Hinojosa has endorsed an extended moratorium on approving new construction until lawmakers can wring concessions from tech firms; Democrats also took the state House there for the first time in more than two decades, won the governorships of Georgia and Ohio and kept Pennsylvania’s. The biggest losers were expensive AI names: CoreWeave and other neoclouds, chipmakers including AMD, Micron and Nvidia, suppliers such as Applied Materials, and power firms such as Bloom Energy. Banks underwriting frontier-lab listings, most imminently Anthropic, and private-markets financiers of the buildout were hit too: Morgan Stanley fell 6% and Apollo more than 4%. The article notes that Elon Musk has hitched his car, rocket and AI ventures to Texas and to the Republican Party. Counterweights it reports: the four hyperscalers (Alphabet, Amazon, Meta and Microsoft) gave up some post-midterm gains but remained roughly where they were before election-day close, and software firms such as Salesforce and Workday outperformed the market even as they declined. Adam Parker of Trivariate Research says the “AI trade” is no longer homogeneous: data-centre hardware, chips and their suppliers still move together, but over recent months several other AI-linked groups have sold off alongside semiconductor firms less often. Ten-year Treasury yields fell 0.13 percentage points in the two days after the election, and Costco rose nearly 2%. The paper says the extra day’s delay before the sell-off is partly conjectural (relief that Trump might not reignite a war with Iran, or that the result was too big to contest) and that hedge-fund unwinding almost certainly contributed. Bulls argue this is not a full repricing of the AI revolution: the S&P 500 was back at July levels, about 6% off last month’s record and still up 16% from a March low. Marko Papic of BCA Research: “Do I think we go down 60% because Gina Hinojosa is the governor of Texas? No.”