Sumit Roy
Stocks jumped on Wednesday, the day after the midterm elections. The Vanguard S&P 500 ETF (VOO) rose 1.6%, while the Invesco QQQ Trust (QQQ) gained about 1%.
That leaves the S&P 500 about 1.7% below its all-time high. The Nasdaq-100 is just under 9% off its peak, after briefly falling into correction territory on Monday.
A blue wave carried Democrats to majorities in both the House and the Senate in the next Congress, with voters citing high prices and affordability as top concerns.
On one level, the stock market rally makes sense. Conventional wisdom holds that gridlock is good for markets, since a divided government has a harder time passing major legislation—though it also raises the odds of shutdown and debt-ceiling fights.
A Backlash Against Data Centers
Underneath the broad market’s gains, the price action was more interesting.
The AI trade has almost become the market. High-flying tech and semiconductor stocks have powered much of the market’s gains in recent years, including this one.
But chip stocks plunged on Wednesday as the election results revealed a backlash against data centers. In local ballot measures across 10 states, voters overwhelmingly sided against the facilities, approving bans, moratoriums and new restrictions.
Investors were especially focused on Texas, where Democrat Gina Hinojosa won the governor’s race in an upset. Hinojosa has pledged an immediate moratorium on new data center construction until the state passes legislation giving communities more of a say.
That matters because Texas accounts for nearly 30% of the US data center capacity set to come online in 2028, the largest share of any state, according to research firm SemiAnalysis.
Nvidia, Broadcom and Applied Materials moved sharply lower on Wednesday. The iShares Semiconductor ETF (SOXX) and the VanEck Semiconductor ETF (SMH) each fell about 3%.
The chip ETFs were already in a downtrend in recent weeks, amid questions about the sustainability of the AI buildout, how costly it has become and whether markets can keep financing it through borrowing and stock sales.
Big Tech Goes the Other Way
While chip stocks fell, some of the biggest tech companies went the other way, in a big way. Microsoft gained 6.7%, Amazon surged 6%, Apple rose 5.4%, Alphabet jumped 3.7% and Meta added 1.7%.
The divergence makes some sense. If data center construction slows, chipmakers lose customers, while the tech giants that already own large data centers see that existing capacity become more valuable. A slower buildout could also ease concerns about the massive capital spending that has weighed on some of those names.
The gains in big tech gave a lift to the broad market, where these stocks carry heavy weights. Other sectors helped too, with financials, health care and consumer staples among those rising 3% or more on the day.
On the other hand, the State Street Technology Select Sector SPDR ETF (XLK) was flat, as gains in big tech offset losses in semis.
The biggest loser was energy, with the State Street Energy Select Sector SPDR ETF (XLE) falling 4.7%. Oil prices tumbled on hopes that a Democratic Congress could hasten an end to the Iran war, with Brent crude sliding about 8.5% to under $95 a barrel.
Bonds rallied as well. The iShares 20+ Year Treasury Bond ETF (TLT) gained 0.8% and the iShares 7-10 Year Treasury Bond ETF (IEF) rose 0.6%. Yields have been retreating since topping out a few weeks ago.
