Recent market volatility: Looking beyond the tech sell-off and midterm elections

Markets have entered a more volatile phase following a strong run in equities, with two developments dominating investor attention: a sharp sell-off in technology and AI-related stocks and the conclusion of the U.S. midterm elections.

While both have generated significant headlines, we do not believe either fundamentally changes the longer-term investment landscape. Instead, recent volatility reinforces our focus on diversification, selectivity and disciplined portfolio construction.

A reset in technology, not a broad risk-off move

The technology sell-off that began in October has been notable for its speed and magnitude, but the market was more resilient than headline indices suggested. Selling was concentrated in mega-cap technology and AI beneficiaries that had experienced the largest gains. Energy and healthcare held up considerably better.

Exhibit 1: The fourth quarter has begun with an uneven selloff

Nasdaq 100 market rout

October 1, 2026 to November 6, 2026. Source: Bloomberg

Questions intensified around the scale and potential returns of AI capital spending, while higher oil prices, geopolitical uncertainty, cryptocurrency volatility and month-end positioning added to the pressure.

Our view is that the fundamental AI story remains intact. Demand for AI infrastructure remains strong, including cooling and power equipment. The more important questions for investors are what price to pay for AI-related revenue growth and which companies can generate sustainable returns on increasingly large investments.

The margin for error has narrowed

After an extraordinary period of technology earnings growth, we believe expectations are beginning to normalize. Investors are increasingly focused on whether the rate of growth is accelerating or slowing. Even strong results can disappoint when expectations have moved too far ahead.

Exhibit 2: Earnings strength extends beyond the Magnificent Seven

January 1, 2022 to September 30, 2026. S ource: Bloomberg

Other risks that warrant attention: AI capital spending has grown rapidly, financing requirements are becoming larger, and market concentration remains elevated. Meanwhile, the broader economy is sending a mixed message, with moderation in consumer-facing activity even as industrial conditions have remained comparatively resilient.

We are more cautious where valuations require near-perfect execution or where growth depends heavily on increasingly aggressive capital spending and financing.

Putting the midterm elections in perspective

The midterm election outcome deserves consideration from investors, particularly in areas where government policy intersects directly with markets. Data-center development is one example: state-level policies governing power infrastructure, permitting and data centers could influence the timing and economics of AI investment, particularly in Texas.

Still, we do not believe the election outcome warrants a wholesale change in equity positioning. Rather than repositioning portfolios around a particular political outcome, we focus on whether policy changes alter the earnings or cash-flow outlook for individual businesses and industries.

Under a Democratic sweep, we see several sector implications:

• Healthcare: We see healthcare as potentially the biggest beneficiary, particularly hospitals, Medicaid insurers, medtech, academic research and life sciences. Expectations for more supportive Medicaid and research funding could benefit hospital utilization, medical procedure volumes and demand for life science equipment. Healthcare could also benefit from a broader market rotation out of AI/tech if investors become more concerned about regulation and data center spending.
• Technology: Rising electricity costs and resource consumption could lead to more restrictions on new data centers and delays in connecting projects to the power grid. However, we believe the incremental fundamental impact would be limited, with many restrictions already being addressed at the state and local levels.
• Industrials: Slower data center approvals could affect suppliers of electrical equipment and infrastructure. Defense spending could also face pressure given the unpopularity of the Iran conflict. We would also be mindful of how much these near-term concerns are being priced into stock prices of companies well-positioned for long-term growth in energy transmission, a goal of both parties.
• Financials: We expect the overall election impact on financials to be relatively limited. Passage of the Credit Card Competition Act could increase competition in payment processing and pressure transaction fees, particularly for Visa and Mastercard. A Democratic sweep could also result in greater regulatory scrutiny and longer approval timelines for large, complex mergers and acquisitions.
• Natural resources: We expect limited direct impact from the elections, as oil and gas activity remains largely driven by economics, state-level regulations, and global supply and demand. The bigger concern remains the Iran conflict, with no quick resolution expected following the elections. Even if tensions ease, elevated shipping and insurance costs and disruptions to refining capacity could keep oil and diesel prices higher for longer.

Remaining selective in portfolio positioning

Rather than seeking to predict every market swing or political development, we’re inclined to use periods of uncertainty to strengthen portfolios around companies and assets we believe are capable of compounding value across market and political cycles.

We remain positive on equities and the long-term AI investment cycle. Within technology, the correction has improved valuations for a number of high-quality companies, but we are not treating every decline as a buying opportunity. We favor businesses with durable competitive advantages, strong balance sheets, visible cash flows and a credible path to earning attractive returns on AI investment. Diversification beyond the largest technology companies remains important.

Exhibit 3: Valuations on technology companies have converged with the broader market

January 1, 1997 to November 6, 2026. Source: Bloomb erg