MidTerminators
US stock futures are attempting to recover after the S&P 500 and Nasdaq 100 suffered their sharpest one-day declines since early June. At the same time, the VIX volatility index has climbed to its highest level since April, reflecting renewed anxiety about artificial intelligence stocks, elections and geopolitical risks.
The recent selloff was particularly visible in Intel. Its shares erased a six-month gap after the company issued disappointing fourth-quarter guidance, producing a record one-day decline. Trading activity was among the heaviest in the stock’s history, suggesting that large, motivated sellers were involved. Retail investors, however, remained net buyers as the price fell.
Midterm Elections Enter the Spotlight
Prediction markets currently favor the Democratic Party to gain control of both houses of Congress. Regardless of the result, historical patterns suggest that completing the midterm elections can remove an important source of uncertainty for investors.
Over more than a century of market history, returns around midterm election years have generally been stronger and more frequently positive than returns in other years. Volatility has also tended to decline once voting is complete. Midterms can initially create a headwind, but the following six to 12 months have often delivered solid equity-market gains.
That does not guarantee a smooth recovery. Markets may remain unsettled for days or weeks after election day, especially if the result creates uncertainty around fiscal policy, regulation or military action.
There is also an apparent contradiction. Some strategists consider the election a major clearing event, while options markets have priced it more like a non-event. This may mean that investors are less worried about the national result itself than about the policies and political signals that follow.
AI Policy Raises the Stakes
The election will inevitably be interpreted through the outlook for artificial intelligence. Investors are watching for policy changes that could affect data centers, energy infrastructure, financing and technology regulation.
State-level races may be especially important because local governments often make the critical decisions governing permits, electricity access and data-center construction. Texas is one of the most closely watched states because of its growing role in AI infrastructure. A decisive result could allow delayed projects, financing arrangements and development announcements to move forward.
National politics matter as well. A divided government typically reduces the probability of major legislation, which can be supportive for bonds by limiting expansive fiscal initiatives. Yet the enormous demand for capital associated with AI computing means traditional election patterns may be less reliable than usual.
Geopolitics remains another wildcard. Investors are considering whether the administration could adopt a more aggressive military stance in the Middle East after the election. Any escalation involving Iran could affect energy prices, inflation expectations and overall risk appetite.
Apple Offers an Alternative to the AI Trade
Apple reports earnings after Monday’s closing bell. Wall Street expects fiscal fourth-quarter earnings of approximately $2 per share on revenue of about $113.5 billion. For the current quarter, expectations call for earnings of roughly $2.91 per share and revenue near $152.6 billion.
Options pricing implies a move of around 4% following the report. Investors may focus less on the completed quarter and more on guidance covering holiday demand, new iPhone products, supply availability and memory costs.
Apple also occupies an unusual position within the market. Its shares have become less correlated with the Nasdaq 100, Nvidia and the large technology companies spending heavily on AI infrastructure. Apple has not committed hundreds of billions of dollars to data centers and advanced chips, making it a potential counterweight to the broader AI trade.
Investors with strong confidence in the long-term returns from AI infrastructure may prefer hyperscalers and chipmakers. Those seeking exposure to a megacap technology company with a different spending profile may see Apple as a useful alternative.
Despite being one of the strongest-performing members of the so-called Magnificent Seven this year, Apple has attracted less retail enthusiasm than the leading AI names. Its importance increasingly comes from what it is not: a company whose immediate valuation depends primarily on massive AI capital expenditure.
History Offers a Warning
Election-year history is not uniformly bullish. When the S&P 500 has risen in both the third and fourth quarters of a midterm year, subsequent returns have sometimes been weaker than average. Across five such cases since 1970, the median return over the following year was only 3.5%, compared with 18.4% for the broader historical sample.
The midterms may therefore remove uncertainty without guaranteeing another powerful rally. The market’s direction will still depend on corporate earnings, AI investment returns, interest rates and geopolitical developments. For now, the election is best viewed as a possible reset point rather than a definitive signal that volatility is over.
