Blue wave lifts boats on Wall Street, then sinks them

Investors were already worried about an artificial intelligence bubble, and new concerns about a slowdown in data centers due to Democratic control further hurt tech stocks.MANHATTAN (CN) — Angst over artificial intelligence was a major reason for the Democratic sweep in the midterms, but it is also now a concern for Wall Street, which may have overvalued the technology.A volatile week on Wall Street ended with the Dow Jones Industrial Average down 484 points, the S&P 500 losing 204 points and the tech-heavy Nasdaq falling 858 points.The swings began the day after the midterms, when stocks posted one of their best days in months. The Dow surged 1,570 points and the Nasdaq reversed its recent decline. But those gains vanished the next day in one of Wall Street’s biggest sell-offs since tariffs were introduced in 2025.The midterms’ long-term impact on markets remains uncertain, but short-term volatility is expected to continue. The VIX, a measure of market volatility known as the “fear index,” has risen sharply since Oct. 30.The Blue tsunami “sets up high-stakes fiscal standoffs over spending bills and debt limits that could stoke volatility across bond and equity markets,” Christopher Gildea of Tower Bridge Advisors wrote in an investor note. He added that increased oversight of artificial intelligence could affect tech stock valuations.Others say fears of an AI slowdown are overblown. “We do agree that sentiment has shifted and building datacenters will become more difficult, but if there is a productive business case for building them, then they will get built,” said Chris Zaccarelli, chief investment officer at Northlight Asset Management.Meanwhile, the labor market remained resilient. October’s jobs report showed a surprising 165,000 jobs added last month, along with an upward revision of 84,000 jobs for August and September. The positive news helped investors recover some of Thursday’s losses.Earlier in the week, two Institute for Supply Management reports showed continued growth in manufacturing and services, but persistent inflation that could prompt the Federal Reserve to raise rates next month.The ISM services index fell less than half a point in October but remained in expansion territory for the 28th consecutive month. Its “prices index” topped 70% for the seventh time in eight months.ISM noted that “commentary on supply chain constraints increased significantly month over month,” with tariffs and fuel costs remaining respondents’ most-cited concerns.The ISM manufacturing report showed similar trends. The sector expanded for the 10th consecutive month, while its “prices index” remained in expansion territory despite a surprising 2.7-point decline.Ariane Curtis, senior North America economist at Capital Economics, wrote in an investor’s note that the ISM manufacturing report “still points to input prices rising at a historically fast rate, so this will hardly reassure the Fed that inflation pressures are easing.”Subscribe to our free newslettersOur weekly newsletter Closing Arguments offers the latest about ongoing trials, major litigation and rulings in courthouses around the U.S. and the world, while the monthly Under the Lights dishes the legal dirt from Hollywood, sports, Big Tech and the arts.Additional Reads