Midterm Elections' Impact on Stock Market

With each gigawatt requiring $57 billion for Nvidia frontier chip deployment, local governments—which currently manage 50 gigawatts of capacity—will see their infrastructure spending decisions directed by federal election mandates.

Local governments currently oversee approximately 50 gigawatts of potential data center capacity, representing a significant portion of future infrastructure projects.

Each gigawatt of data center capacity requires an estimated $57 billion for deployment, particularly when utilizing Nvidia's advanced frontier chips.

This equates to a potential total spending of $3 trillion, which could generate a broader economic boom of $9 trillion, factoring in a money velocity multiplier of three.

This period coincided with heightened market fear and rising oil prices, which climbed to $109 per barrel, influencing voter sentiment and political strategies.

Donald Trump proposed a $5,000 payout to every US citizen if Republicans win, a strategy that the speaker views with skepticism regarding its feasibility and actual impact.

The proposal is compared to Gavin Newsom's past stimulus relief checks, highlighting a recurring pattern of politicians attempting to influence voters through financial incentives.

Investors are anticipating a potential Trump administration to bring further tax cuts, stimulative spending, and increased defense expenditures, which could lead to higher-for-longer yields.

Potential tariff policies under such an administration are widely considered inflationary, contributing to elevated bond yields and creating significant market headwinds.

Higher yields and rising oil prices are identified as primary challenges, while sectors such as defense, financials, data center REITs, and nuclear energy could see opportunities.

A divided government scenario is seen as potentially mitigating Treasury supply risks by limiting aggressive new spending or tax cut initiatives.

In this scenario, investment focus would shift away from data center REITs towards sectors such as healthcare services, consumer staples, retail, and renewables.

Solar, wind, and nuclear power represent the foundational pillars for future sustainability, a transition deemed inevitable regardless of temporary political posturing.

Consumer stability is expected to underpin the recovery of retail, restaurant, and mall sectors, contributing to a broader economic rebound.

Increased consumer spending, driven by these programs, benefits various socio-economic classes, particularly bolstering economic activity among the lower class.

Legislative deadlock in Washington is likely to create obstacles for state and local government spending, especially impacting large infrastructure projects like data centers.

Politicians might utilize data center regulation as a central theme in their campaigns leading up to the 2028 election, further contributing to regulatory uncertainty and potential delays in capital expenditure for new projects.

Established industry giants like Microsoft, Meta, Amazon, and Google are positioned to maintain their dominance during capital expenditure decelerations because high barriers to entry prevent new competitors from filling existing computing power shortfalls.

High barriers to entry for new competitors strengthen the pricing power of major companies such as Microsoft, Meta, Amazon, and Google, reinforcing their market dominance.

Established companies with existing infrastructure are well-positioned to maintain their leading roles during periods of capital expenditure deceleration, consolidating their market control.

Despite buildout delays and persistent shortage-driven inflation, the 'Magnificent 7' tech companies benefit from enhanced pricing power, ultimately decreasing their overall credit risk.

Indiana's HB 1333 model proposes redirecting a portion of data center sales tax revenue back to local governments, creating a financial incentive for municipalities.

Permitting delays, identified as a significant cost factor in current development processes, could potentially be reduced by trading faster approvals for additional sales tax contributions.

Morgan Stanley argues that it is too early to assess the long-term effects of AI on the labor market, estimating AI's current contribution to the unemployment rate at roughly 0.15%.

Although layoffs in high-exposure occupations saw a sharp rise in early 2025, these flows have since stabilized and are not yet significant enough to create a systemic economic crisis or a 'canary in the coal mine' scenario.

Potential market triggers for this scenario include a deal with Iran, a decrease in inflation, and the proposed $5,000 payout to citizens, though the speaker has not yet taken a position, preferring to focus on Federal Reserve-related trades.

The Economist and YouGov found 61% of likely voters skeptical of the $5,000 checks, while 45% oppose them based on national debt concerns, despite the budget reconciliation path a Republican victory could provide.

Morgan Stanley identifies CrowdStrike, Palo Alto Networks, and Okta as key cybersecurity plays while noting that slowing frontier AI development may favor open-weight model companies like Palantir and Nvidia.

The speaker also expresses interest in 'behind the meter' power plays, specifically citing Bloom Energy, but notes that regulatory hurdles for data centers remain a critical factor affecting growth in that sector.

The firm plans significant hiring by 2027 to build a competitive financial terminal, addressing perceived deficits in existing platforms like the Bloomberg terminal.

Initial public offerings for Anthropic and OpenAI are likely to be delayed until after the midterms, while a Federal Reserve rate meeting, scheduled five days before the midterms, is expected to result in no hike, with the CPI report on the 13th identified as the key variable.

Historically, Bank of America data shows positive market gains in the 6 to 12-month period following midterms, with gains observed in nine out of ten three-month periods since World War II.

The 10-2 Treasury curve remains in 'shock territory', indicating significant market stress, with the market appearing to hit a peak around the 527-528 level.

The speaker believes the 'rubber band is fully stretched,' suggesting that while some marginal gains might be possible, a rapid snap-back is likely, though they remain long on a low-debt, low-risk basis.