Americans voted in the midterms with control of Congress at stake, and Wall Street was already placing its bets. High oil prices, higher borrowing costs and a possible Fed rate hike in December added to the uncertainty. Matthew Tuttle, Founder and CEO of Tuttle Capital Management, says the mood on the Street has less to do with the ballot box and more to do with what has happened to the AI trade in recent weeks. He walks through which sectors are most sensitive to Washington, why Texas matters for data centers, and how everyday investors should think about position sizing and balance.
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Election Day Positioning on Wall Street and the Fear Hanging Over the AI Trade
It is election day. What is the mood on the street this morning, and how much of the outcome is already priced in?
The mood is somber, but that has nothing to do with the elections. It is what has happened to the AI trade over the past couple of weeks. I think the markets have already priced in a blue wave. If the Republicans are able to keep Congress, that could be very positive for AI stocks. Some negativity about AI is already priced in, so you could also see a little bit of a boost regardless of whether we get a blue wave or not. From a data center standpoint, Texas is going to be the most important. If Abbott loses in Texas, I think that is a clear negative for the AI trade.
If we get a split Congress, which parts of the US market could benefit and which could get hit most?
A split Congress really does favor the AI trade. Part of this selloff is fear of a blue wave. Democrats have said they will oppose new data center building. You could argue that what you say to get elected is different from what you do once you are elected, but we will see. The Iran war is much more of a wild card. With a split Congress, Trump is allowed to keep doing what he wants to do, and we do not really know what that is. With a blue wave, Democrats have said they will cut off funding for the war. Does that mean Trump doubles, triples or quadruples down before that happens? That is not going to be solved by election night, and it will keep impacting the oil market. So I am much more focused on the AI trade, because we have no idea what this means for Iran.
If one party controls both the House and the Senate, how does the picture change for oil and AI?
Democrats have come out negative on the data center build out. Whether they follow through once in power remains to be seen, but the market is certainly looking at that as a negative. Short term, the market would look at a blue wave as positive for oil prices, thinking it means the war in Iran ends sooner rather than later. I would not necessarily bet on that, but you could see a drop in oil prices if we wake up tomorrow and the Democrats have swept.
Which sectors are most sensitive to what happens in Washington?
Health care, certainly. The closer we get to Medicaid for all, the more that is likely to impact health insurers in a negative way. I do not think we are anywhere near that, but it is something to consider. The other thing I would look at is anything tied to Elon Musk. A lot of people have run on putting him on trial. If that happens, regardless of whether there is any smoke there, it has to be a negative for SpaceX and Tesla. And if you are one of the other big seven CEOs, seeing a fellow CEO on trial is not going to give you a warm and comfy feeling. That is a wild card.
Does the election matter for tech and AI stocks, or is it all about earnings and spending?
It is much more earnings and spending, but the election matters. If we get a blue wave and the Democrats follow through on their promises of no new data centers, that will hurt the AI trade, and it would come at a time when we already have many other concerns about it.
For everyday investors, what matters more right now: the election, a possible December rate hike, or the Fed?
Right now it is what is going on in the AI trade. What is going on with all the CapEx, and the market now punishing negative cash flow and asking what we are going to get for all this spending, and when. I think the Fed is on the sidelines, and if people are pricing in a blue wave, it is not that big a deal. From an investor standpoint, you want to own the AI bottleneck stocks, but watch your position sizing and be diversified. Have some property and casualty stocks, some heavy asset, low obsolescence stocks, and what we call Lindy stocks, companies that have been around forever. Balance out your holdings. You cannot go whole hog on AI.
What are you watching tonight, and what could move markets tomorrow?
Texas is going to be the most interesting to me, along with some of the battleground states where the polls have the Democrats flipping. I think a divided Congress would be better. And from a pure public interest standpoint, I am definitely watching Michigan. I have got some popcorn ready for that race.