Fixed Income & Equities Markets Week in Review

U.S. equities endured another volatile week in a thus far challenging fourth quarter. The conclusion of the midterm election initially lifted the broader U.S. market on Wednesday before sending stocks sharply lower on Thursday. Despite the removal of election uncertainty and lower oil prices, major U.S. indices all declined for the week through Thursday’s close. Amid risk-off positioning, both the technology-heavy Nasdaq Composite and the small-cap Russell 2000 Index entered correction territory, down 10% from their recent highs.

AI hardware names, already fragile coming into the week, faced additional selling pressure after the midterm election. Wednesday was a notably positive day for the broader market, yet much of the AI trade was hit. The election cleared away political uncertainty, and President Trump’s conciliatory response to Democrats taking control of Congress further supported Wednesday’s rally. However, with Democrats gaining offices at both the federal and state levels, investors worried that their increased power could hinder the data center buildout and, in turn, AI capital expenditures (capex), one of the key drivers for U.S. equities.

Given the uncertainty around potentially tighter restrictions on data center builds, investors continued to rotate out of AI hardware names post-midterm results. Consumer Discretionary, Real Estate, Consumer Staples, and Financials were the top-performing S&P 500 sectors for the week through Thursday, as investors rotated into equities more closely associated with the broader economy. Data center worries compounded AI financing and monetization worries, and the S&P 500 Information Technology sector fell more than 8% on the week through Thursday, driven by declines in AI hardware names. On Thursday, the iShares Semiconductor ETF (SOXX) and Roundhill Memory ETF (DRAM) fell 12.2% and 18.0%, respectively, and the Nasdaq Composite dropped more than 5.5%, pushing it into correction territory. The S&P 500 Industrials and Utilities sectors, other beneficiaries of the AI data center buildout, also lagged this week.

Beyond the election, Friday morning’s Nonfarm Payrolls report showed a still-solid labor market. October payrolls grew by 165k, well ahead of the 65k consensus. According to the CME FedWatch Tool, the probability of a December Federal Reserve rate hike rose to ~78% on Friday morning, up from ~67% yesterday and ~71% a week ago. While the election and the AI trade dominated headlines, oil prices moved notably lower this week. Signs of diplomatic progress in the Middle East, along with Trump’s statement that the U.S. had no immediate plans to strike Iran, helped push West Texas Intermediate crude to just above $90/barrel as of Friday morning, down from more than $100/barrel last week.

Investor concerns behind the AI trade have made for a rocky fourth quarter so far. U.S. equities have been unable to benefit from another robust quarter of S&P 500 earnings growth, at +30%, as AI capex concerns weigh on investor sentiment. While the AI trade has lagged of late, the broader market has fared well: the S&P 500 Equal Weighted Index has outperformed the market-cap-weighted S&P 500 Index by nearly 8% thus far in the fourth quarter. Time will tell if the AI trade is simply taking a breather while investors seek greater clarity on election outcomes or not. Although quarter-to-date performance has been challenging, namely for technology names, the U.S. market is entering a historically favorable seasonal period.

As of November 05, 2026