Markets in a Minute: Midterms Temp-check
By: Zac Martin, CFA
Author: Zac Martin, CFA, Senior Investment Analyst
Week Ending November 6th – Midterms Temp-check
Biggest story that drove market returns last week was the US Midterm election. The immediate market reaction was negative as futures trading sold off following early results, however, by Wednesday morning the market was set to open in positive territory. Under the surface, however, was a different story. AI sensitive stocks sold off Wednesday, and a broader market route occurred on Thursday. Since the election several of the AI highfliers have entered into correction territory.
No sector is positive and growth-oriented factors have taken the largest plunge.
Keep in mind, the market is a tool used by investors to discount future cashflows to today’s prices. So, what was the market discounting this past week? Or rather, what did the market price in? The short answer is a tougher regulatory environment for the Data Center investment cycle. The biggest source of evidence to support this thesis is the election results in Texas. Texas’s Governor and state legislature are now democrat leaning, additionally, Texas has the most planned capacity for data center construction out of any other state.
Additionally, the biggest risk to a data center’s value is being delayed. Additional year long delays can cost up to 5.5% of the data center’s value, according to Apollo. The market appears to be pricing in the possibility of increased delays to construction. It’s too early to tell what or if regulation will be enacted, but regardless the market will be watching closely.
The Week Ahead:
- Consumer Price Index (11/10)
- Existing Home Sales (11/12)
- Producer Price Index (11/13)
