AI stocks sink as global markets rally following US Democratic sweep

00:00:00: Global stocks cheered Democrats victory in the US midterm elections on Wednesday, on hopes of easing tariffs improving trade relations.

00:00:08: with the rest Notation continues.

00:00:30: where to?

00:00:31: Well, we will talk about it in a minute.

00:00:33: Welcome to Swiss Codes.

00:00:35: Daily Market Talk is fifth of November just after the US midterm elections.

00:00:40: I'm Ipeco Skardishkeya.

00:00:42: Today We Will Continue To Talk About How Midterm Elections In The U.S.

00:00:47: Continue To Eco Through The Global Financial Markets.

00:00:50: But Before We Do And As Always Please Keep In Mind That Opinions Are My Own and This Is Not Financial Advice.

00:01:03: This show is brought to you by SwissQuote.

00:01:05: So global equity markets mostly welcome the strong win from Democrats on Wednesday with European and Chinese markets, for example surfing on hopes that democratic shift in U.S Congress could increase pressure to undo some tariffs maybe?

00:01:20: And restore stronger trade ties with the US.

00:01:23: although an improvement in trade relations remains a possibility rather than certainty because while the present has not changed but the equity rally also supported major u.s indices yesterday trading session.

00:01:36: yet technology sucks remain behind that.

00:01:39: Really, unfortunately the Dow Jones industrial index jumped three percent.

00:01:43: The S&P five hundred added one point fifty eight percent while NASDAQ a hundred advanced one point forty four percent less than others.

00:01:51: A hyperscaler's gain on.

00:01:53: hope that the new Congress would encourage them to slow their AI spending maybe but same hope to see slower AI spending hit chip stocks in this context.

00:02:04: Philadelphia's SMI conductor index sank more then in the wake of U.S.

00:02:10: midterm elections and index slipped below a critical Fibonacci level, which is the major third.

00:02:17: eight point two percent Fibonochi retracement on twenty five to two thousand twenty six rally potentially stepping into the medium term bearish consolidation zone.

00:02:28: for deeper correction.

00:02:30: AMD could gain only one person.

00:02:32: after announcing strong results at an upbeat outlook better than expected an arm also failed to bring buyers back on board after the close.

00:02:41: Both stocks fell in day-after hours trading.

00:02:44: Cosby is down by more than six percent at the time I'm talking here, while the SMP and NASDAQ futures are in the negative.

00:02:51: Now, looking through the knee-jerk volatility.

00:02:53: The outlook for hyperscalars may improve if they actually do slow down spending without hurting their ground potential on investments made so far.

00:03:03: but AI enablers and the broader AI conflicts including data centers and energy has arguably become more challenging following the midterm elections Because Democrats' victory is now expected to become a potential obstacle for an investment story that's already facing questions over massive spending, future returns remain quite uncertain and the financing of all this obviously.

00:03:29: Piper scalars have been throwing hundreds billion US dollars at AI infrastructure without yet convincing investors that future returns will justify that spending while rising debt and borrowing costs make it harder.

00:03:44: Not a day goes by without one of these hyperscaler companies seeking more financing through equity and bond issues, both negative for their valuation.

00:03:53: Although demand for freshly issued equities and bonds remain strong so far though that strength does not necessarily mean the fundamentals are following.

00:04:02: because then there is this slowing earnings story!

00:04:05: As we've been talking about it since early this week.

00:04:08: according to FAQ says third November update blended third quarter earnings growth stood at twenty two point six percent for the magnificent seven companies, compared with thirty.

00:04:24: At the end of September, these expectations were almost reversed.

00:04:27: Thirty-three point six percent for The Seven Giants versus twenty seven point eight percent For the rest.

00:04:33: So if technology earnings grows slower than others Why would investors continue paying high valuations?

00:04:40: Investors are questioning how much of valuation premium These leaders still deserve Now.

00:04:45: some quotient is necessary though because investment losses litigation charges comparisons with earlier investment gains partly explain why we had this gap between Magnificent Seven and the rest of the S&P five hundred companies.

00:05:00: The figures do not entirely reflect weaker underlying operations for the hyper scalars, and their S& P. four hundred ninety-three includes other technology company.

00:05:10: so this is evidence of earnings broadening beyond the magnificent seven companies rather than a clean divide.

00:05:19: S&P five hundred yet.

00:05:22: Still, the setup was already suitable for broader sector rotation from technology to non-technology into U.S midterm elections.

00:05:30: that democratic sweeps strengthened that case rather than creating an entirely new direction.

00:05:36: so rotation continues now zooming out and looking back at the last two years Higher energy prices and tariffs were among the factors that encouraged investors globally to seek refuge in AI, and technology sucks.

00:05:50: thinking they would be less sensitive.

00:05:54: Technology shares whose valuations are normally sensitive to interest rates because more of their expected earnings lie in future while navigating the rise in yields this year exceptionally better than others as investors also remain very much confident exceptional and very high growth potential, lost that confidence.

00:06:17: That potential now becomes more vulnerable, but earnings expectations weaken.

00:06:22: The spending continues to rise at an incredible speed and the cash needed to sustain growth keeps increasing.

00:06:28: On the other hand from now on a democratic victory could increase pressure for diplomacy in the Middle East And perhaps help bring energy prices lower.

00:06:36: US clear loss upto nine percent below eighty eight dollars per barrel level.

00:06:41: on that hope In the wake of midterm elections yesterday just one session I'm all good news.

00:06:46: Democrats could also push for undying terrorists, although Donald Trump's veto power limits their ability to deliver a broad rollback.

00:06:54: Any progress still on either front of either terrorist or Middle East and energy crisis can encourage investors.

00:07:11: Here, European stocks for example offer a clear valuation argument with stock six hundred speed ratio around fourteen point six times forecast earnings and the FTSE hundreds at about twelve times.

00:07:23: that compared roughly twenty one point seven times four DOS technology stocks.

00:07:28: And eighteen points seven times for the S&P.

00:07:30: five hundred meanwhile as we've been discussing since the start of this week is well on earning front.

00:07:37: The european stocks earnings growth rate was also to the US in the third quarter of this year so far, but they're cheaper.

00:07:45: So that's a good reason for the rotation to keep going with caution because that rotation doesn't come risk-free.

00:07:52: higher yields remain an important threat towards entire equity complex including technology and non-technology

00:08:00: U.S.,

00:08:00: non-US markets Because higher yields make bonds more competitive at multi decade high levels And thus increasing financing costs put pressure on all equity valuations.

00:08:12: So the risk here is that rotation changes to market's leadership without however delivering a sustained and abroad equity rally because stocks you are rotating toward do not necessarily have the same upside potential than the technology stock, hence outflows from technological support indices with less technology exposure.

00:08:34: but some capital could also move towards sovereign bonds.

00:08:38: Investors do not have to replace every technology position that they sell with another equity position, especially when the macroeconomic backdrop is not necessarily ideal!

00:08:49: So let's talk about that an ideal macroeconomic environment a little bit.

00:08:53: The RBA raises interest rates by twenty-five basis points on Tuesday, the Bank of England is expected to raise its rate by twenty five basis points later today and other major central banks either hike their interest rates or said they would tighten monetary policies quarters.

00:09:14: Therefore, the financial conditions are tightening and even if diplomacy in any changes in trade policy from the US eventually ease inflation while central banks will need evidence that those improvements are lasting before softening their

00:09:28: hands.".

00:09:29: So my take is that U.S.

00:09:31: midterm elections strengthen the case for more selective and broader market leadership.

00:09:36: they do not necessarily remove the constraints facing equities can improve and valuations live room for disappointment while recognizing that bonds could also capture part of the money leaving the AI trade at current levels after the rise we saw in global sovereign yields over past months to multi-decade high.

00:10:01: So this is all for today, I'm Ipek Oskar Deshkaya.

00:10:05: thank you so much for joining me.

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00:10:36: So I will meet you again tomorrow and until then, good day

00:10:58: trading.