Midterms and earnings test AI-focused stock market

AI investment fears drive market turbulence

Investors are concerned about the financing and financial returns required to support the AI investment theme central to the US stock market. AI-related stocks faced turbulence following disappointing quarterly results from Alphabet and Amazon, while Intel shares dropped 29% on Friday.

Marta Norton, chief investment strategist at Empower, said the market seems troubled because of persistent AI fears and digestion of earnings. She noted that these fears seem to be building.

Chris Galipeau stated, "if you miss or don’t jump over that bar, you’re in trouble."

Tech giants prepare for quarterly earnings reports

Apple, AMD, and Palantir are among the companies scheduled to release quarterly earnings next week. More than 100 S&P 500 companies report results next week, including Qualcomm, McDonald’s, Amgen, and ConocoPhillips.

Last week, Apple CEO John Ternus launched a new MacBook Pro with a touch screen in Los Angeles.

Democratic sweep concerns for regulatory policy

The midterm elections could influence the future outlook for AI regulation. Investors worry about the energy and environmental impact of data centers, with a Democratic sweep expected to increase regulatory scrutiny.

Rick Meckler, a partner at Cherry Lane Investments, said a significant blue wave will be seen as negative for AI names, tech in general, and the market as a whole. This regulatory scrutiny could also affect Wall Street banks, crypto firms, defense, and healthcare sectors.

Economic growth and jobs data outlook

The US economy grew by 3.4% in the third quarter, according to Commerce Department data. This figure represents an increase from the 2.2% growth recorded in the previous quarter.

Third-quarter growth was the fastest in a year, and the Federal Reserve maintained interest rates while upgrading its economic assessment.

The US employment report for October is scheduled for release next Friday.

Historical S&P 500 performance following midterms

Investors monitor how a change in Congressional power might affect the economy and stock markets. Since 1930, the S&P 500 has seen an average gain of 14% in the year following midterm elections, according to Ed Clissold and Thanh Nguyen.

Clissold and Nguyen reported that the index climbed by an average of 8.8% during years when the president's party failed to retain control of the House. While stocks often rally after midterm elections, AI spending and interest rate hikes add risk this time, AOL reported.

Broad market resilience despite sector-specific drops

Stock market performance has been rocky throughout October. An unnamed source described the market as "a bit troubled" in reports.

Caterpillar shares fell 9% on Thursday after the company maintained its annual sales growth forecast. Despite these drops, the energy, financial, utility, and healthcare sectors saw gains in October.

These gains contributed to a year-to-date rise of over 10% for the S&P 500. Chris Galipeau said, "The market is much more broad than people generally want to give it credit for,".