By Daniel McGarvey, CFA on behalf of Stonebridge Financial Group advisors
Since Democrats’ decisive gains in the midterm elections earlier this month, investors have been sorting through the implications of a government with a Republican president and Democratic Congress. This configuration has historically been the least favorable for equity returns (see chart below), but partisan control is not by any means a reliable market timing signal. The S&P 500 has been positive in the twelve months following midterm elections every year since 1938, and there are strong corporate earnings and economic growth today that should continue undergirding the market regardless of which party is in office.
Source: Strategas Research Partners LLC
The most consequential question from an investment standpoint will likely be how these results affect the buildout of AI infrastructure. The colossal capital expenditures by the world’s largest AI companies have made data center development a booming industry, but many of the winning candidates campaigned on data center moratoriums because of their controversial economic and environmental effects. The Texas gubernatorial race was especially critical since roughly 25% of the data center pipeline is connected to Texas, and other crucial states like Georgia and Ohio are also proposing restrictions.
Companies tied to data center infrastructure did react quite negatively after the elections, but our sense is that this will mainly change the cost dynamics of new construction and will not be a death blow to the industry. There will likely be new regulations that focus on location (most people do not want a data center in their backyard), pollution, energy usage, and taxation.
Democrats could use the looming debt ceiling as leverage to remove 100% expensing for capital expenditures, or there could be proposals that keep the tax favorability but only if environmental incentives are met. Additionally, state and local governments which need cash could consider new taxes to make data centers more of a revenue source. Ultimately, we expect construction will carry on because common ground will be found, but it could now be slower and more costly.
The cost dynamics will be integral to AI financing, a topic which has come to the top of investors’ minds recently due to the ballooning level of associated debt issuance. The exact amount is unclear because much of it is off-balance sheet and not in public markets, but Goldman Sachs puts estimates at over $500 billion of AI debt issuance so far this year. Just within the public investment grade market, hyperscalers alone are set to make up almost 8% of the index next year.
Some hyperscalers like Meta and Alphabet have also started issuing equity because higher rates are making debt more expensive and their free cash flow has turned negative. A shift towards equity financing is probably an improvement since there’s only so much issuance the bond market can healthily absorb, but these companies plan to spend over $1 trillion next year in one way or another.
The election results do not derail those plans or end the AI trade by any means, but they could make financing even costlier and force both stock and bond investors to be more selective about which risks they are willing to take on.
The S&P 500 fell 0.9% in October as investors awaited midterm election results and digested concerns with the AI buildout. The Bloomberg Aggregate Bond Index bounced 2.4% as the 10-Year Treasury Rate fell back under 5% and the Federal Open Market Committee chose not to change its 3.75-4% target for short rates.
Material discussed is meant for general/informational purposes only and it is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary therefore, the information should be relied upon when coordinated with individual professional advice. Past performance is no guarantee of future results. Diversification does not ensure against loss. The opinions and forecasts expressed are those of the author, and may not actually come to pass. This information is subject to change at any time, based on market and other conditions.
November 2026 Commentary: Midterms and Data Centers
By Daniel McGarvey, CFA on behalf of Stonebridge Financial Group advisors
Since Democrats’ decisive gains in the midterm elections earlier this month, investors have been sorting through the implications of a government with a Republican president and Democratic Congress. This configuration has historically been the least favorable for equity returns (see chart below), but partisan control is not by any means a reliable market timing signal. The S&P 500 has been positive in the twelve months following midterm elections every year since 1938, and there are strong corporate earnings and economic growth today that should continue undergirding the market regardless of which party is in office.
Source: Strategas Research Partners LLC
The most consequential question from an investment standpoint will likely be how these results affect the buildout of AI infrastructure. The colossal capital expenditures by the world’s largest AI companies have made data center development a booming industry, but many of the winning candidates campaigned on data center moratoriums because of their controversial economic and environmental effects. The Texas gubernatorial race was especially critical since roughly 25% of the data center pipeline is connected to Texas, and other crucial states like Georgia and Ohio are also proposing restrictions.
Companies tied to data center infrastructure did react quite negatively after the elections, but our sense is that this will mainly change the cost dynamics of new construction and will not be a death blow to the industry. There will likely be new regulations that focus on location (most people do not want a data center in their backyard), pollution, energy usage, and taxation.
Democrats could use the looming debt ceiling as leverage to remove 100% expensing for capital expenditures, or there could be proposals that keep the tax favorability but only if environmental incentives are met. Additionally, state and local governments which need cash could consider new taxes to make data centers more of a revenue source. Ultimately, we expect construction will carry on because common ground will be found, but it could now be slower and more costly.
The cost dynamics will be integral to AI financing, a topic which has come to the top of investors’ minds recently due to the ballooning level of associated debt issuance. The exact amount is unclear because much of it is off-balance sheet and not in public markets, but Goldman Sachs puts estimates at over $500 billion of AI debt issuance so far this year. Just within the public investment grade market, hyperscalers alone are set to make up almost 8% of the index next year.
Some hyperscalers like Meta and Alphabet have also started issuing equity because higher rates are making debt more expensive and their free cash flow has turned negative. A shift towards equity financing is probably an improvement since there’s only so much issuance the bond market can healthily absorb, but these companies plan to spend over $1 trillion next year in one way or another.
The election results do not derail those plans or end the AI trade by any means, but they could make financing even costlier and force both stock and bond investors to be more selective about which risks they are willing to take on.
The S&P 500 fell 0.9% in October as investors awaited midterm election results and digested concerns with the AI buildout. The Bloomberg Aggregate Bond Index bounced 2.4% as the 10-Year Treasury Rate fell back under 5% and the Federal Open Market Committee chose not to change its 3.75-4% target for short rates.
Material discussed is meant for general/informational purposes only and it is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary therefore, the information should be relied upon when coordinated with individual professional advice. Past performance is no guarantee of future results. Diversification does not ensure against loss. The opinions and forecasts expressed are those of the author, and may not actually come to pass. This information is subject to change at any time, based on market and other conditions.
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