Key Takeaways:
Democrats won both chambers of Congress on November 3, with deep majorities in each, and also flipped the governorships of Texas, Ohio, and Georgia, three of the most important states for AI data center construction.
The S&P 500 fell -4.4% on Thursday, its worst day since April 2025, and -2.7% for the week, while the tech-heavy Nasdaq-100 sank -4.91% for the week and closed in correction territory.
Policy headlines on AI, data centers, and taxes will keep markets on edge. Developed ex-US equities, US small and mid-cap equities, and fixed income held up better this week, and we believe they remain attractive diversifiers to US large caps, especially those tied to the AI buildout.
It was a week of sharp reversals. The Nasdaq Composite fell 1.1% on Monday as October's selloff in AI-related shares resumed. Stocks rallied broadly on Wednesday after election results came in, then reversed abruptly on Thursday: the S&P 500 fell -4.4%, the Nasdaq -5.5% and the Dow -3.4%, the worst day for all three since April 2025. All 11 S&P 500 sectors declined, the Philadelphia Semiconductor Index plunged more than -12%, and the VIX jumped 69.7% to 28.18.
Stocks steadied on Friday after a strong October jobs report (165,000 jobs added versus 59,000 expected), but the S&P 500 still lost -2.7% for the week, the Nasdaq 100 -4.91% and the Dow -0.9%. The Nasdaq posted its fourth straight weekly decline. Losses were concentrated in the largest growth stocks: Morningstar US Large Growth fell -7.2% versus -1.1% for Large Value, and the equal-weighted S&P 500 (-1.0%) beat the cap-weighted index (-2.7%) by a wide margin.
As of November 8, Democrats held 54 Senate seats to 44 with two races uncalled, and 252 House seats to 161, a net gain of 42, with their largest House popular-vote margin since 1976. They flipped Senate seats in Republican strongholds including Texas, Kansas, Ohio, South Carolina, and Iowa.
Divided government limits federal change since Democrats cannot override a presidential veto without votes of Republican Senators. Still, control of the committees sets the agenda. Sen. Ron Wyden, who may chair the Senate Finance Committee in January, released draft legislation in October to impose an excise tax on data center services and eliminate 100% bonus depreciation for data center assets. Democrats have also proposed raising the 21% corporate tax rate, and their sweep has raised concerns about a debt-ceiling battle. Few of these ideas are likely to become law in the near term, but each will generate headlines that may move US equity markets in the coming months.
For markets, the governors' races mattered as much as Congress. Gina Hinojosa became the first Democrat elected governor of Texas in more than 30 years. For the first time since 1987, Democrats will hold the governorships of Texas, Georgia and Ohio, and all three incoming governors support pausing or restricting new data center development.
The planned buildout is geographically concentrated. Wells Fargo estimates Texas accounts for 27% of planned US data center gigawatts, Georgia 7%, and Ohio and Pennsylvania 5% each. States with new governors (Texas, Georgia, and Ohio) together represent 39% of planned capacity (Exhibit 1).
Texas Governor-elect Gina Hinojosa campaigned on an immediate moratorium on new data centers until the legislature passes protections, on requiring developers to show projects will not raise electricity or water costs, and on ending subsidies. After the election, she said, “We need to stop what we are doing with data centers until we have those protections." In Georgia, Governor-elect Keisha Lance Bottoms called for a statewide pause while the state assesses effects on power and water costs, the environment, and local communities. Ohio Governor-elect Amy Acton similarly advocates for pausing data center expansion until certain “guardrails” are met.
Resistance predates the vote: from January 2024 to May 2026, at least forty-six projects representing more than $170 billion of announced investment were blocked, withdrawn, or stalled after community opposition. However, Barclays' Dominique Toublan argues that "AI pushback is bipartisan but local, making the buildout pricier rather than stalling it." UBS estimates that up to 30% of data center capacity slated to launch in 2028 could be delayed. We agree that a delayed, more expensive buildout is more likely than a halted one, and the new governors do not take office until January. But the range of outcomes has widened, thereby increasing uncertainty, and that is precisely what markets dislike.
Technology fell 6.7% (Exhibit 2) as investors sold the companies most dependent on data center spending. On Thursday, industry giant Nvidia fell -9.3%, and even steeper losses in AMD, Micron, and Broadcom, among others, erased several hundred billion dollars of market value in that single trading session. The trade was already fragile: the Nasdaq-100 had entered a correction recently on worries that data center spending growth was slowing. Industrials (-3.0%) ranked third worst as power-equipment supplier GE Vernova fell -7.5% on Thursday.
Importantly, this was a repricing of risk, not of profits. Bank of America noted the AI hardware selloff "has come from lower valuation multiples, not lower earnings estimates," and S&P 500 earnings grew a blended 31.4% in the third quarter. We have noted in the past that a key risk to US equity returns would be their elevated valuations relative to their global peers and to their own histories. Tech stocks tied to the AI buildout have seen some of the most dramatic expansion in valuation multiples during 2026, and they have also experienced some of the sharpest drawdowns in recent weeks.
Energy was the worst sector last week, down 12.2%, nearly twice the tech sector's decline. The cause was oil: WTI fell 12.8% for the week to $90.83, and Brent fell 13.3% to $98.32. The election raised expectations that Washington would pursue a diplomatic settlement of the Iran war, as investors bet Democrats would press President Trump to end it, and Middle Eastern crude exports have been recovering. Energy stocks were 2026's standout, up about 42% year to date, leaving ample room for profit-taking once the geopolitical premium faded. A slower data center buildout may also trim expected growth in power and natural gas demand, a theme that has supported parts of the sector. Energy and technology fell for varied reasons, but both were priced for a specific policy path, and the election made that path less certain.
When uncertainty rises, markets' first reaction is to sell, even when fundamentals are solid, as they are today. That uncertainty will not resolve quickly. The new Congress convenes January 3, 2027, and the new governors take office the same month. Investors should expect a stream of headlines on state moratoriums and permitting, data center taxes, corporate tax rates, the debt ceiling, the Iran conflict, and the Federal Reserve, where markets priced roughly an 80% chance of a December rate hike as of Sunday, November 8. Each could move AI-related stocks and the broader reindustrialization trade in power generation, electrical infrastructure, and manufacturing.
We have encouraged broad diversification and continue to recommend it, so that portfolios are exposed to more than the AI buildout that has dominated US large-cap equities in recent years. Exhibit 3 shows the benefits.
Developed ex-US equities fell 1.8% versus 2.6% for the US market, while US core bonds gained 0.4%, municipal bonds 1.2%, and global ex-US bonds 0.3%.
International markets are not immune: MSCI Japan lost 7.5% as chip-related names there sold off, and chip-heavy MSCI Emerging Markets suffered for similar reasons. Meanwhile, European technology stocks were among that region's most resilient sectors. That divergence is just the most recent demonstration of why we favor broad developed ex-US exposure over concentrated regional bets.
The fundamental case for diversification within US equities is also shifting. According to FactSet, the “Magnificent Seven” are now expected to report 22.6% third-quarter earnings growth versus 32.6% for the other 493 S&P 500 companies, the first time since late 2022 that mega-cap expectations have trailed the rest of the index.
In fixed income, the 10-year Treasury yield fell to 4.86% from 4.94%, lifting bond prices; at these yields, high-quality bonds offer meaningful income as well as ballast to equity risk in portfolios.
The WIA Investment Team continues to view AI infrastructure and the reindustrialization of the United States as durable, multi-year themes. The election does not change that, but it may make the path slower, costlier, and noisier, particularly in states like Texas, Georgia, and Ohio. We encourage investors to avoid reacting to headlines, rebalance to long-term targets, and stay broadly diversified.
Please contact us at cio@worldadvisors.com with any questions.
This Market Bulletin is provided for informational and educational purposes only and does not constitute investment advice, a recommendation, or an offer to buy or sell any security. The information contained herein is based on publicly available sources believed to be reliable as of the date of publication; however, World Investment Advisors makes no representation or warranty as to its accuracy or completeness. Indexes are unmanaged and cannot be invested in directly. Errors may exist within this document. Past performance is not indicative of future results. Investors should consult with their financial advisor before making any investment decisions.