What’s Happening

The midterm elections are now behind us. Democrats won control of both the House and the Senate, and the outcome was decided quickly and accepted. Markets welcomed the removal of uncertainty. On Wednesday the Dow rose more than 3%, its best day since April 2025. The S&P 500 gained about 1.6%, and volatility measures dropped sharply. That relief rally was consistent with what we’ve long noted: markets tend to stabilize and perform well once election uncertainty is resolved, whatever the outcome.

Today, that rally has reversed, and the selloff is concentrated in semiconductors and AI-linked equities. As of this writing, the Nasdaq is down roughly [~4.5–5%] and approaching correction territory, more than 10% below its record. The S&P 500 is off about [~3%], and the Dow is down a more modest [~2%]. The semiconductor index is down close to 10%. Nvidia, AMD, and Micron have each posted significant declines, and Qualcomm fell sharply after weaker-than-expected phone chip sales. The weakness has been global, with South Korea’s chip-heavy market down more than 5%.

Two forces are at work. The first is the theme we highlighted last week: investors want evidence that the massive AI infrastructure spend is producing revenue and earnings. With rates still elevated, the market is less willing to pay for long-dated growth on promise alone. The second is new. Investors are pricing the possibility that a Democratic Congress, along with some state-level proposals, could bring tighter regulation of data center development. That could slow parts of the AI buildout. Neither factor questions whether AI matters. Both question the pace and cost of getting there.

The selloff is also narrower than the headline numbers suggest. The largest chip and AI names now make up a very large share of the major indexes. Their declines have outweighed gains in much of the rest of the market, and at points today more S&P 500 stocks were rising than falling.

Diversification Is Working

This is exactly the kind of environment where broad diversification earns its keep:

• Value and dividend-oriented equities have held up much better than growth and tech.
• Developed international equities also added a meaningful cushion relative to U.S. large-cap growth exposure.
• Bonds are once again doing their job. Treasuries are rallying for a second straight day, and the 10-year yield has fallen to its lowest level since early September as investors move to safe-haven assets. This flight-to-quality response is the traditional stock/bond relationship working as intended. That dynamic was notably absent in 2022 and parts of 2023, when stocks and bonds fell together.

The net effect: diversified portfolios are weathering this selloff materially better than a concentrated U.S. large-cap growth or tech-heavy allocation.

What We’re Watching

Friday’s October jobs report is the next major data point and will shape expectations for interest rates heading into year-end. We are also watching how the policy outlook for the incoming Congress develops, especially around energy and data center regulation. Oil has been volatile with the election outcome, which matters for the inflation picture.

How We’re Thinking About Opportunity

Selloffs driven by valuation recalibration and policy repricing, rather than deteriorating fundamentals or systemic risk, often create entry points. We are actively evaluating:

• Rebalancing where equity/fixed income drift has created advantageous reset points
• Tax-loss harvesting in taxable accounts where positions have declined
• Selectively adding to quality names or strategies caught in indiscriminate selling

We continue to hold a constructive long-term view on AI as a driver of productivity and economic growth. Near-term uncertainty about monetization timelines and regulation doesn’t change that thesis. It creates tactical opportunities within it.

We will continue to monitor conditions and will be in touch if anything material changes. In the meantime, please don’t hesitate to reach out with questions.