Blue Wave Brings Tsunami of Questions
The vote was clear, and now we have many questions about what this means for the future of artificial intelligence, data center development, and more.
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Think Americans are angry? Whoa. The fact that Democrats outperformed Republicans in the midterm elections should not have surprised anyone. The depth and breadth of the beating suffered by the party in power was, in my opinion, shocking. It wasn’t just a strong night for the party in blue that ran across “purple” states. It was far more than that. Democrats took several traditionally Republican states away from the party in red. Are we just a nation of angry people now?
It does seem that starting with 2016, every single presidential and midterm election has been a repudiation of whomever is in power. While there is some truth to that sentiment. This felt a bit more severe than did those other elections. This was a vote against declining household standards of living, in my opinion, and that is a condition, especially among younger adults, being felt in every state.
Democrats have taken control of the Senate and House (the entire Legislative Branch of government) as that long-threatened blue wave actually surged across the nation. The anger over the war in Iran and the subsequent inflation caused by the durability of that military action had voters delivering what has to be seen as a rebuke of Pres. Trump. Democrats flipped Senate seats in Maine, Iowa, Kansas, Ohio, Texas, South Carolina and North Carolina as well as a plethora of seats in the House.
The president asked the populace to pretend that he was on the ballot. They may have done just that. Once the electoral outcome had become obvious, Pres. Trump posted to social media, “I wasn’t on the Ballot and if I was, we would have won IN A LANDSLIDE!” Well, that’s tough to see from this vantage point.
As for financial markets, we (and others) had projected that certainty after the election would be a net positive regardless of outcome. Last night at least this proved true. Equity index futures turned southward once it was clear that Texas was really in play. By the time I was working on this piece at zero dark-thirty, those futures markets had turned green. In other financial markets, the U.S. dollar has weakened overnight, taking gold back above $4,000 per ounce. Crude oil prices have continued to collapse despite the softer greenback.
Just a Thought on AI…
Does the loss of Texas by the Republicans change the math for high tech, AI and data center developers? Almost definitely. Data center developers who had been looking to build several dozens of these giant artificial intelligence campuses across Texas were already dealing with a suspension of some approvals under outgoing Republican Texas Gov. Greg Abbott. Abbott was voted out of office last night.
Gina Hinojosa was elected to that position on Tuesday and will become the first Democratic governor of the Lone Star State since Gov. Ann Richards was defeated by then future U.S. Pres. George W. Bush in the 1994 midterms. Hinojosa will not only be the first Democrat party governor of Texas in more than 30 years, she will be the state’s very first Latin-American governor.
The deal for the data center crowd is this: As part of her campaign, Hinojosa repeatedly called for an immediate moratorium on data center development. Considering Hinojosa’s electoral victory along with those of other Democrats who won gubernatorial races in Georgia, Ohio and Pennsylvania (already blue) could leave half of proposed AI data center build-outs across the nation subject to stricter local regulatory scrutiny and political pushback.
All of these Democrat party candidates, now elected, made more aggressive data center regulation a core part of their campaigns. Do these elections underscore the intensity of a voter backlash against AI and against these AI-related developments? Or was this “blue wave” more of an issue of households facing economic hardship despite headline data (partially driven by the development of AI) that had made traditional metrics of economic activity look quite strong? Guess we’ll find out. These data centers are middle-class job creators, but they do require tremendous use of resources.
So, will these developers and other large businesses that had migrated to Texas due to its business-friendly environment go elsewhere? Can they go elsewhere? Or does this industry just slow down now? That would put a significant crimp in that state’s demand for labor and exacerbate a number of scarcities already being felt across the country. Texas is said to account for almost 30% of all U.S. data center capacity set to come online in calendar year 2028. That represents, by a wide margin, the largest share of any single state. For now. Elon Musk, of SpaceX (SPCX) and Tesla (TSLA) has been talking about data centers in space. The industry may look to move off-shore. Space? Not so crazy an idea, anymore.
Marketplace
Markets put a halt to the multi-day meltdown that had been in place, on Tuesday. The Nasdaq Composite moved ahead by 0.83%, bringing the Nasdaq 100 (+0.68%) along for the ride. The S&P 500 gained 0.36% for the session as growth led the way. Interestingly, not everyone did well. In fact, large swaths of the market did not. The Dow Transports and the KBW Banks both closed in the red. Across small caps, the Russell 2000 gained 0.23%, while the S&P 600 lost 0.32%. Hmm…
Crude oil prices turned lower. Energy prices have been in near free-fall since last Friday on speculation that there could be some progress in the U.S./Iran negotiations. Front-month WTI futures are trading with a $95 handle (per barrel) this morning after having traded at just below $105 last Friday. Yields are up slightly across the slope of the Treasury curve. not enough to do real damage though, as rates are clearly lower over the past week or so.
Breadth
Growth finally caught a break on Tuesday. Apple (AAPL) and Palantir (PLTR) may have failed to save the markets on Monday, but anticipation of electoral certainty and expectations for a strong report by Lisa Su’s Advanced Micro Devices (AMD) actually did. Only four of the 11 S&P sector SPDR ETFs closed out the Tuesday session in the green, but technology (XLK) and communication services (XLC), for a change, led the winners. The cyclicals and defensives, for the most part, closed in the red.
The guts of the market were not as green as the headline indices imply, either. Losers beat winners by a rough eight-to-five margin at the NYSE, while winners beat losers by about eight-to-seven at the Nasdaq. Advancing volume took a paltry 39.3% share of advancing volume across NYSE-listings in composite, while trading volume ebbed. That said, advancing volume took a much more impressive 67.4% share of Nasdaq-listed composite trade, but also on reduced activity.
What we did get on Tuesday was a “true” Inside Day. An Inside day occurs when the high end of the day’s trading range and low end of the day’s range both fall inside the range of the day prior. A “true” Inside Day occurs when in addition to that condition, the open and close of the season fall inside the open and the close of the day prior. We see this in the above daily chart of the S&P 500. What it signals is a sharp short-term decline in volatility. The condition is also visible below in the daily chart of the Nasdaq Composite.
Looks Like a Good Day
Enjoy the rally, gang. Say a prayer for the folks you like. Say a prayer for the folks you don’t like. I’ll be back in a little bit with an in-depth piece on AMD.
Economics (All Times Eastern)
07:00 – MBA 30 Year Mortgage Rate (Weekly): Last 7.37%.
07:00 – MBA Mortgage Applications (Weekly): Last 3.4% w/w.
08:15 – ADP Employment Report (Oct): Expecting 67K, Last 90K.
08:30 – Balance of Trade (Sep): Last $-105.6B.
08:30 – Treasury Refunding Announcement.
09:45 – S&P Global Services PMI (Oct-F):
Flashed 57.9.
10:00 – ISM Non-Manufacturing Index (Oct): Expecting 54.8, Last 54.9.
10:30 – Oil Inventories (Weekly): Last -1.892M.
10:30 – Gasoline Stocks (Weekly): Last +3.87M.
The Fed (All Times Eastern)
No public appearances scheduled.
Today’s Earnings Highlights (Consensus EPS Expectations)
Before the Open: CVS (1.65), DDOG (.64), MCD (3.38), UBER (.87)
After the Close: APP (4.34), ARM (.48), MCK (10.75), QCOM (2.16)
At the time of publication, Guilfoyle was long PLTR, AMD equity.
