Wall Street expects Democrats to win at least one of the houses of Congress in the US midterm elections on Tuesday, setting the stage for a potentially volatile ride in the stock and bond markets with artificial intelligence oversight, defense spending and crypto legislation on the table.
A UBS basket of stocks tied to Republicans has plunged since hitting a peak in August, badly lagging the S&P 500 Index. One major area where this could show up is in the AI trade that has been driving the stock market for the past few years, as Democrats are expected to push for stricter regulation and oversight of the technology. Meanwhile, local governments are under pressure to block data centers from being built in their communities.
If the “big political takeaway” from the election is that “data centers are bad, that would be impactful for growth,” said Robert Waldner, chief investment officer at Invesco Advisers Inc.
Read More: Is the AI boom cracking? Wall Street's tech sell-off raises questions over what comes next
The election arrives with the AI trade in the equity market already under scrutiny. The tech-heavy Nasdaq 100 Index tumbled 4.8% across Thursday and Friday after reports from major players raised concerns about heavy spending on AI, while Treasury yields fell as traders piled into haven assets.