US stocks climbed on Tuesday, with technology shares leading a recovery in the S&P 500 as Americans headed to the polls for midterm elections that could reshape control of Congress. According to Bloomberg, investors were also weighing concerns over artificial intelligence spending and the potential market implications of the election outcome.
The S&P 500 gained 0.5% in morning trade in New York, recovering from earlier losses, while the Nasdaq 100 advanced 0.9% after entering correction territory in the previous session. Technology was the strongest performing sector among the 11 major S&P 500 groups.
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Apple bucked the broader rally, falling 2.7% after its latest quarterly results and outlook disappointed investors, particularly over revenue in China.
Midterm elections add to market uncertainty
The election has introduced another layer of uncertainty for investors already navigating questions around technology valuations and corporate spending. Bloomberg reported that prediction market Polymarket was pricing in roughly a 95% probability of Democrats winning the House of Representatives and a 77% chance of them taking the Senate.
Historical trends, however, have generally favoured equities after midterm elections. According to Morgan Stanley data cited by Bloomberg, large cap stocks have gained about 15% on a market cap weighted basis and 16% on an equal weighted basis in the six months following midterm elections since 1982. Both measures have risen roughly 22% over the subsequent year.
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“For all the prognostications and reactions to tonight’s results, here’s the key stat to remember: While past performance doesn’t guarantee future results, since 1950, so 76 years, the S&P 500 has never been lower 12 months after a midterm election, and that is the most notable point of all for clients,” said Tom Essaye, founder of The Sevens Report.
AI spending concerns persist despite tech rebound
Despite Tuesday's recovery, concerns over the sustainability of artificial intelligence investments continued to weigh on sentiment. Bloomberg reported that major technology companies are increasingly turning to bond markets to finance AI expansion, prompting some of the world's largest asset managers to flag the risk of a potential bubble.
UBS Securities, however, sees scope for a year end rally, citing favourable seasonality and relatively low hedge fund positioning.
“Hyperscaler earnings clearly did not provide the all clear investors were hoping for, but getting through the election could be the catalyst that unlocks a year end squeeze,” Davide Montoni, Americas head of institutional equity derivatives and QIS sales at UBS Securities, wrote in a note to clients.
Among individual stocks, Palantir fell 4% after its quarterly outlook pointed to a possible slowdown in sales growth, while Fiserv surged 11% after its earnings per share beat analyst estimates. Yum! Brands gained 0.8%, with RBC saying Taco Bell's third quarter comparable sales decline was better than expected.
The broader earnings picture remained resilient, with 84% of S&P 500 companies that had reported third quarter results beating earnings estimates. Companies accounting for about 70% of the index's market capitalisation had reported results so far, according to Bloomberg.
(Disclaimer: This article is based on inputs from agencies. These do not represent the views of The Economic Times)
