On Tuesday, Nov. 3, Americans from across the country made their voices heard by casting or mailing in their ballots. When the dust settled, Democrats had decisively retaken the House of Representatives and the Senate. A Democratic sweep of Congress was widely expected by prediction markets ahead of the midterm elections.
But not everything on Election Night went as expected. Tuesday yielded a dubious surprise for the Trump bull market that may push the Dow Jones Industrial Average (^DJI -3.44%), S&P 500 (^GSPC -4.36%), and Nasdaq Composite (^IXIC -5.52%) over the edge.
President Trump’s bull market may be running on borrowed time. Image source: Official White House Photo by Daniel Torok.
The Trump bull market’s biggest test has arrived
Several catalysts have lit a fire under the bull market that’s flourished under President Donald Trump, including better-than-expected corporate earnings and record share repurchases by S&P 500 companies. But nothing has been more paramount to the success of stocks than the artificial intelligence (AI) infrastructure build-out.
According to IDC, AI will transform workforces and create an estimated $22.5 trillion in cumulative economic value between 2025 and 2031. This technology is spurring unprecedented investments in AI infrastructure and is widely boosting growth projections.
On Tuesday, the “surprise” came in the form of at least five Democratic governors flipping seats held by Republicans. According to the Associated Press, as of 8 p.m. ET on Nov. 4, Democrats held 28 of 50 governorships, with two races yet to be called. It’s the first time in 16 years that Democrats have clinched a majority of the governorships.
But it’s not this majority, per se, that’s potentially problematic for the Trump bull market. It’s that Democratic governors won elections in several states where massive AI data center projects are underway, including Texas, Ohio, and Georgia.
Gina Hinojosa may not be as bad for Texas data centers as it looks. Her plan asks for: no subsidies, union labor, no NDAs, and proof household power and water bills won’t rise. Much of that is already underway: Amazon, Google, Meta, Microsoft, OpenAI, Oracle and xAI pledged in March to bring their own power and pay for transmission Microsoft pledged to pay full property taxes without seeking tax breaks Nvidia is working with Vistra, NextEra and Constellation on data centers that cut power use when the grid is strained
— Wall St Engine (@wallstengine) November 4, 2026
For example, Democratic Governor-Elect Gina Hinojosa of Texas has publicly stated that she’ll issue a moratorium on data center approvals until the state passes laws governing electricity, water, and air rights. Texas accounts for a significant percentage of U.S. data center capacity that’s under construction.
Hinojosa isn’t alone. Most Democratic governors have expressed skepticism about existing AI regulations and/or the pace of AI data center build-outs.
Image source: Getty Images.
A historically expensive stock market can ill afford an AI data center build-out slowdown
Slowing the pace of AI data center expansion and putting a bright spotlight on AI regulation could be potentially devastating to the Trump bull market’s No. 1 catalyst. Not only would tougher oversight likely slow the AI infrastructure build-out at the state level, but it would also force investors to rethink the premium valuations they’ve assigned to AI stocks.
The stock market entered 2026 at its second-highest valuation in history, according to the S&P 500’s Shiller Price-to-Earnings (P/E) Ratio, also known as the Cyclically Adjusted P/E Ratio (CAPE Ratio). The Shiller P/E Ratio has only topped 40 on three occasions over 156 years, including the present. The previous two instances were eventually followed by unsightly bear markets (the dot-com bubble and the 2022 bear market).
Stock Market Shiller PE Ratio on the verge of taking out its Dot Com Bubble all-time high 🚨 🤯 👀 https://t.co/CtCmSgWnLt
— Barchart (@Barchart) July 11, 2026
In other words, history shows that Wall Street and investors are unwilling to tolerate premium valuations over an extended time frame.
If Democratic governors clamp down on data center expansion or impose stricter state-level regulation, it could be the catalyst that forces investors to re-rate a historically pricey Trump bull market. While this in no way guarantees a stock market crash will occur, it greatly increases the odds of an elevator-down move in equities.
