Choppy markets may follow the election, but secular trends in AI, energy and capital spending will ultimately matter more than politics.
KEY TAKEAWAYS
The election results initially hit Nasdaq-100 futures and AI-related companies, particularly businesses relying heavily on borrowed money. That selloff faded before morning as traders reconsidered the immediate consequences.
Opposition to data centers is driven less by party ideology than by concerns over electricity bills, water use and local infrastructure. Those concerns will likely produce tougher conditions rather than a complete halt to construction.
Governors may campaign against data center projects, but governing introduces pressure from jobs, payrolls and property tax revenue. A pause or list of conditions often marks the beginning of a negotiation, not the end of a project.
Interest rates are a greater constraint on the AI buildout than election results. Investors should focus on Treasury yields, Fed policy and the borrowing costs facing capital-intensive companies.
Near-term market trading may remain choppy, but the election did not change the underlying demand for computing power. Rates, earnings, energy and technology will continue to determine where investment flows.
MY HOT TAKES
Wall Street overreacted because it treated campaign rhetoric as settled economic policy. Once newly elected officials confront budgets and competing states, many promises will evolve into negotiated terms.
The AI buildout will become more expensive, not disappear. Fewer tax incentives and greater responsibility for power and water costs will put pressure on returns, making margins more important for investors.
The most vulnerable AI companies are the borrowers, not necessarily the biggest spenders. The price and availability of capital will separate durable businesses from those riding the theme with fragile financing.
Investors expecting an immediate change in energy prices because political control changed hands are watching the wrong catalyst. Oil markets and geopolitical developments can overwhelm domestic policy shifts in the short term.
Elections influence the rules of the game, but they do not erase structural demand. The key question is whether policy changes eliminate AI investment or merely change its location and price–and the evidence points to the latter.
You can quote me: “Politicians set policy, but interest rates, earnings and technology decide where the money goes. And AI still needs electricity. It doesn't care who won.”
Black and blue? I was up this morning well before the sun–nothing new there–with the news murmuring in the background and the pundits still recapping a very long night. I will confess I stopped listening somewhere around my second espresso (or was it the third?), because I had a song stuck in my head, and it was not the one anyone on television was singing. I was searching through my mental catalog of Blues songs to play on the blue-tinted election results, desperately wanting to avoid everyone else's cliche references. The song I landed on was Irving Berlin's "Blue Skies." Not because of anybody's map–the map is somebody else's business–but because of the story behind the song, which is one of my favorite pieces of Broadway lore. In 1926, Rodgers and Hart wrote the score for a Ziegfeld musical called Betsy, and its star did not care for the number they had written for her. So she called Irving Berlin–THE Irving Berlin–who handed her a brand-new tune at the last minute. On opening night the audience demanded twenty-four encores–TWENTY-FOUR–and on the last one, the star forgot the words. Berlin, sitting in the front row, sang them up to her. And here is the part I love. Betsy…was a flop. It closed after 39 performances. The song went on to The Jazz Singer the following year and has been recorded by just about everybody since. The show closed–the song played on. I have been thinking about that all morning, because Wall Street spent last night confusing the show with the song.
Make no mistake, the market had the blues overnight. As the results rolled in, Nasdaq-100 futures fell as much as 2.4%, and the names most tied to the AI buildout—especially the ones that borrow heavily to build–took it on the chin. The reason was not hard to find. Several of the new governors in the biggest data center states campaigned against the buildout, with platforms ranging from outright moratoriums to "pauses" to long lists of conditions. Traders did what traders do at midnight with half the facts–they sold first and planned to ask questions later. And then, somewhere between my alarm and one of those espressos, the tantrum burned itself out. Futures clawed their way back into the green well before the sun came up. Blues at midnight, a different tune by breakfast.
So let me say it plainly. The blue wave (sorry I just couldn’t avoid that cliche) is real–but it can't overpower the AI wave. Alas, there will certainly be impacts, and I don't want to pretend otherwise. The backlash against data centers did not start last night, and it does not belong to one party. Voters in towns of every political stripe have been showing up at zoning meetings worried about their electric bills and their water tables, and candidates on both sides of the aisle had been backing away from the bulldozers for months. Some incumbents were hitting the pause button before a single vote was counted. That tells you this is not about ideology. It is about the utility bill.
But–and I have been saying this a lot lately–campaigning and governing are two different jobs. Campaigning is about what voters are angry about. Governing is about what the budget needs–and once the budget meetings start, the jobs and the tax dollars will win out. Data centers bring construction crews, permanent payrolls and property tax revenue to towns that rarely see that kind of investment. No governor wants to explain why a multi-billion-dollar project went to the state next door–and there is ALWAYS a state next door–even for Hawaii. 🤭 Read the campaign promises closely and you will notice they are not all the same promise. One is a freeze. One is a pause to study. One is a list of conditions–pay your own utility costs, hire locally, sign a community agreement and you are welcome. A pause is not a padlock. A list of conditions is not a ban. It is a term sheet, and anyone who has spent time on Wall Street knows that a term sheet is the beginning of a negotiation, not the end of one.
Will it cost more to build? Certainly. I expect fewer tax breaks, more strings attached and builders picking up more of the tab for their own power and water. But, in case you haven’t noticed, cost has not stopped anybody so far. The hyperscalers (that handful of tech giants that build and run the biggest data centers) have been spending like money is no object, and every time the price of admission has gone up, they have paid it and kept building. That doesn't change because of the color of a politician's necktie or which lapel pin she wears. What it does change is the math. Every tax break that disappears and every megawatt a builder has to generate for itself comes straight out of the return on that capital. For investors, that is not a reason to run from the AI trade. It is a reason to read the margin line a little more carefully when the next round of earnings comes in.
My friends, interest rates are THE real gating factor. The AI buildout increasingly runs on borrowed money–bonds, private loans, stock sales, even suppliers financing their own customers–and the cost of that money matters far more than who sits in a statehouse or who holds a committee gavel. Look at what sold off hardest overnight. It was not the cash-rich giants. It was the borrowers. Meanwhile, Treasuries rallied, which tells you the bond market was far less rattled than the stock futures were. That's why I would argue Kevin Warsh has more power over markets this morning than anyone who was elected last night. He's only about six months into a four-year term as Fed chair, and at the end of the day his decisions on the price of money will move markets far more than anything that happened at the ballot box. The ballot box decides who writes the rules. The Fed decides what the money costs. Guess which one the hyperscalers' CFOs are watching. 😉
To be clear, not every sector gets smooth sailing. Crypto is likely to face a headwind as committee gavels change hands and the legislative path gets harder. The industry's long-awaited market structure bill was already stuck in the Senate in September, and a new set of committee chairs is unlikely to be in any hurry to unstick it. But I don't think it will be as bad as many expect, for the same reason I gave on data centers. Money, innovation and competition have a way of finding a path around political speed bumps–and crypto has spent its entire existence doing exactly that. Speed bumps slow traffic. They don't close the road.
The biggest mistake investors could make right now is assuming a green wave follows the blue one–that energy prices suddenly start falling because the people writing energy policy have changed. I don't expect diesel to get cheaper anytime soon. On Monday, the national average was $6.29 a gallon, up roughly 77% since the start of the year. I don't expect the energy picture to change in the near term, either. Policy moves slowly. Oil markets, especially with the situation in Iran, move on their own. In fact, oil had its biggest one-day drop since July on Monday–not because of anything on a ballot, but on headlines about reopening the Strait of Hormuz. The biggest energy story of the week was written in the Persian Gulf, not in a polling place.
Very generally for markets, I expect a choppy ride in the near term. But the chop will settle, and the secular trends will regain their purchase on the markets. And remember–the headwinds facing the cap-weighted indexes (the ones where the biggest companies carry the most weight) had very little to do with DC politics in the first place. The Nasdaq-100 confirmed it was in a correction on Monday, BEFORE a single vote was cast, because investors had grown nervous about how much Big Tech is spending on AI and when it will pay off. Wind and weather whip up the surf, but the tide ebbs and flows regardless. The tide that got us here will ultimately decide where markets finish the year.
So what should investors actually be watching? Not the map. Watch the 10-year Treasury yield and every word out of the Fed, because that is the price of the money building all of this. Watch the capital spending guidance on the next round of big tech earnings calls–if the checks keep getting bigger, the buildout is alive and well, no matter who won. And watch the statehouses in January, when the new governors sit down with their legislatures, because that is where campaign promises turn into permit fees, power contracts and tax terms. Ask yourself a simple question before you trade on last night's headlines. Did anything that happened at the ballot box change what it costs to borrow, how much electricity a data center needs, or whether the world wants more computing power? Or did it only change where those data centers get built, and what they pay for the privilege? The bottom line is simple. Politicians set policy, but interest rates, earnings and technology decide where the money goes. And AI still needs electricity. It doesn't care who won.
Irving Berlin understood something about show business that applies just as well to Wall Street. Washington holds open auditions every two years–that is what an election is, after all–and the cast changes. Last night, it changed a lot. But the song doesn't care who gets the part. And if a few of the new performers forget the words when the budget meetings start in January, I suspect the songwriters–rates, earnings, and technology–will be happy to sing them up from the front row. They always seem to get the best seats. 😉
YESTERDAY’S MARKETS
Stocks closed mixed on Election Day. The Dow Jones Industrial Average fell 197 points, or 0.38%, to about 51,786, while the S&P 500 gained 0.36%, and the Nasdaq Composite rose 0.83%. The S&P 500 and Nasdaq each snapped three-day losing streaks as chipmakers AMD, Broadcom and Micron gained at least 2%, while Apple fell 1.9% on a weak holiday-quarter gross margin forecast. Brent crude settled 1.12% lower at $103.60 a barrel on reports of progress toward a possible U.S.-Iran deal.
NEXT UP
ADP Employment Change (October) may come in at 67k, lower than last month’s 90k print.
ISM Services Index (October) probably slipped to 54.8 from 54.9.
Important earnings today: Martin Marietta Materials, CDW, Kraft Heinz, McDonald’s, Wayfair, Uber, Emerson Electric, Datadog, AMC Entertainment, Insulet, Owens Corning, Stanley Black & Decker, Circle Internet, Zimmer Biomet, CVS Health, HubSpot, QUALCOMM, Motorola Solutions, Riot Platforms, Goodyear, elf Beauty, Fair Isaac, Snap, Wolfspeed, Zillow, SunRun, MetLife, Lumen, Fastly, Dutch Bros, Figma, Chime Financial, Solaris Energy, and McKesson.