The US midterm elections scheduled for Tuesday will determine whether Democrats can wrest control of Congress from President Donald Trump's Republican Party. According to reports from Livemint, Democrats are widely expected to gain control of the House of Representatives, but the Senate race remains uncertain. Republicans currently control both chambers of Congress, and a change in the balance of power could influence the Trump administration's legislative agenda and introduce fresh uncertainty for financial markets. The midterm elections could also determine the outlook for AI regulation, adding another layer of complexity to the current market environment. As noted by Empower's Marta Norton, "There is still some digestion around what we saw with earnings this week." A Democratic sweep of both chambers of Congress would likely bring greater scrutiny of the AI industry and data-center buildout, according to strategists at Rayliant Global Advisors. An unexpected Republican hold would offer more policy continuity, potentially benefiting Korean and Taiwanese chipmakers and other suppliers to the US technology boom.
On the economic front, investors will closely monitor the US employment report for October, scheduled for release on Friday. As reported by Livemint, the data is expected to provide important clues about the health of the labour market and help determine the Federal Reserve's next monetary policy moves. Investors will assess whether employment conditions and wage growth could influence the timing of another interest rate increase by the US central bank. The employment figures will follow encouraging economic data released during the week, with figures published on Thursday showing the US economy expanded at its fastest pace in a year during the third quarter, supported by resilient consumer spending and increased business investment in artificial intelligence. However, as noted by Manulife John Hancock Investments, "I think the missing piece of this strong economic growth narrative is the lack of job growth."
Corporate earnings will be another major market driver, with several prominent technology and AI companies scheduled to announce their quarterly results. According to Livemint, Apple is due to report its earnings on Monday, with shares of the iPhone maker having gained approximately 27% so far this year, making its latest results and outlook particularly important for investors. Other major technology companies expected to announce results include Advanced Micro Devices (AMD), Qualcomm and Palantir Technologies. More than 100 companies listed on the S&P 500 are also scheduled to report their quarterly earnings during the week, including McDonald's, Amgen and ConocoPhillips. The latest AI turbulence stemmed from disappointing quarterly results of Alphabet and Amazon, two hyperscalers spending massively on data centers, while shares of semiconductor company Intel tumbled nearly 29% on Friday following its report. "The earnings bar is very high," said Chris Galipeau, head market strategist at the Franklin Templeton Institute. "And if you miss or don't jump over that bar, you're in trouble."
Technology stocks came under further pressure on Friday as concerns grew that the enthusiasm surrounding artificial intelligence had pushed valuations beyond sustainable levels. As reported by Livemint, the sell-off dragged major US equity benchmarks lower, with the S&P 500 sinking 1.8% and the Nasdaq Composite falling 2.9%. The Nasdaq Composite dropped 747.73 points, or 2.9%, to settle at 25,437. The quarterly results intensified concerns about financing and financial returns needed to support the AI investment theme at the heart of the US bull stock market. Caterpillar shares sank 9% on Thursday after the company stuck to its annual sales growth forecast despite strong demand for its power equipment from data centers. "The stock market "seems a bit troubled to me, and I think that really stems from the AI fears that seem to be persistent, if not building," said Marta Norton, chief investment strategist at retirement and wealth services provider Empower.
Asia's AI-heavy stock markets face significant exposure to US midterm election outcomes, with the outcome potentially reshaping the tech trade and sectors from clean energy to defense. According to Business Standard, if Dems sweep next week, those issues could become more pressing and those fears could spur another pullback in AI stocks. Asian investors are already grappling with elevated borrowing costs and questions over how long the memory-chip boom can last. Rayliant Global Advisors notes that "Anything that's a threat to AI is going to weigh heavily on sentiment toward stocks in Korea, Taiwan, Japan, and maybe to a lesser extent, China." However, Korean and Taiwanese chipmakers remain integral parts of the structural AI investment, leaving them well positioned to weather different election outcomes. Chinese clean-energy companies could benefit from a stronger Democratic showing, while Japanese defense firms may fare better if Republicans retain control. A divided government could provide an indirect tailwind for equities by restraining fiscal expansion and putting downward pressure on US bond yields, according to Lombard Odier.
