A relief rally on Wednesday
The 2026 midterms handed Democrats control of both the House and the Senate, setting up a divided government for the final two years of President Trump's term. Markets tend to prefer certainty, and divided government usually means fewer sweeping policy changes. Investors cheered: on Wednesday the S&P 500 rose +1.6%, and the Dow had its best day after a midterm election in more than 40 years [1]. The equal-weight S&P 500, which gives every company the same weight, closed at a record high [1].
Thursday: the focus shifts to data centers
The optimism faded within a day. On Thursday the S&P 500 fell more than ‑4%, its largest one-day drop since April 2025, and the Nasdaq fell more than ‑5% [1]. Semiconductor stocks led the selling, dropping more than ‑12% to their lowest level since April [1].
The election itself played a role. Voters in about ten states weighed roughly 40 local ballot measures on data centers, and most results went against new development. Concerns about electricity costs, land use and grid strain cut across party lines. Investors are now asking not just whether AI spending will pay off, but whether the buildout can continue at its planned pace. Demand itself looks intact: AMD reported data-center revenue nearly doubled from a year ago [1].
Bonds, oil and the Fed
While stocks fell, bonds did their job. The 10-year Treasury yield dropped to 4.84%, a two-month low, down from about 5.3% in early October [1]. Expectations of tighter fiscal spending under divided government helped, as did falling oil prices. WTI crude fell ‑11.1% on hopes of a deal to reopen the Strait of Hormuz, easing a key source of this year's inflation [1].
The economy itself remains firm. The ISM manufacturing index rose to 55.5, and initial jobless claims fell to 189,000, matching the year's low [1]. Inflation was 3.7% in September, and markets were pricing a roughly 70% chance of a Fed rate hike in December [1].
Friday's rebound and the week in full
Friday brought a partial recovery. AI stocks bounced, the S&P 500 rose +0.3% to 7,376.86 and the Nasdaq gained +1.1%, while the Dow slipped ‑0.5% [2]. A strong jobs report helped: employers added 165,000 jobs in October, well above the prior 12-month average of 48,000, and unemployment held near 4.1% [3]. Treasury yields firmed on the news [2].
What it means for investors
The midterms reduced one source of uncertainty and raised another. Divided government makes major legislation harder, shifting attention to bipartisan deadlines such as the 2027 debt limit, while trade policy can still move by executive action [1]. The bigger market question is the pace and cost of the AI buildout, which will be settled by results over time, not in one trading day [1].
Beneath the headlines, diversification worked: bonds rallied, defensive sectors held up and valuations eased to about 18 times expected earnings, down from about 23 times a year ago [1]. Since 1980, the S&P 500 has fallen ‑5% or more at some point in nearly every year [1]. A plan built around long-term goals is designed for weeks like this one.
Sources
1. MarketDesk Research: The Weekly Note (November 6, 2026), Putting This Week's Market Volatility in Perspective client letter (November 5, 2026) and Client Talking Points (November 5, 2026). Figures as of Thursday's close.
2. Y-Charts
3. U.S. Bureau of Labor Statistics, The Employment Situation – October 2026, November 6, 2026.
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