Market Flash: Navigating Post-Election Volatility
Key Takeaways:
• The selloff was sharp, but the stress was concentrated. AI-related stocks bore the brunt of the decline, while
Treasury bonds provided diversification and broader financial markets showed less stress.
• A slower data-center buildout does not mean the AI investment cycle is over. After an extraordinary period of
spending, greater constraints, competition and scrutiny may lead to more disciplined investment, stronger return
requirements, and greater differentiation between winners and losers.
• The broader investment backdrop remains supportive. Corporate earnings remain healthy and have broadened
beyond the largest technology companies, while history suggests that large one-day declines alone have not been
a reliable reason to reduce long-term equity exposure.
Market Selloff – What Happened?
Stocks sold off sharply today, with the S&P 500 down 4.4% and the Nasdaq down 5.5%, as investors reassessed the AI
trade following Democratic election victories and the potential for restrictions to slow the data-center buildout. The
concern hit semiconductors hardest, with the chip index down roughly 12%, turning what began as a policy concern
into a broader risk-off move that erased Wednesday’s post-election rally.
The equity market selloff appeared to be aggravated by hedge funds that were forced to reduce leverage. Hedge
funds entered 2026 with record levels of leverage, much of it concentrated in a relatively small number of AI-related
stocks. As those stocks fell, the funds were forced to sell more shares, exacerbating the declines.
Importantly, the stress did not spread evenly across financial markets. Treasury yields fell as stocks declined, and highquality
bonds continued to provide diversification. Shorter-term yields led the move lower, with the 2-year yield falling
about 10 bps to 4.48% and the 10-year falling about 5 bps to 4.84%, both near two-month lows. The larger drop at the
short end came as the odds of a December Fed hold rose to about 29% from 17% a day earlier, though subsequent
hikes remain more likely. High-quality bonds have held up better than lower-quality credit on Thursday, with the ICE
BofA US Corporate Index returning 0.13% compared with -0.22% for the ICE BofA US High Yield Index. Credit spreads
widened, with technology-related bonds (particularly lower quality bonds) seeing a larger increase than the broader
investment-grade corporate market.
FROM THE PM DESK - NOVEMBER 6,2026
Data Centers
Data Centers were a political issue prior to November 5 and will likely remain one. While political uncertainty affects
the timing and economics of the buildout, projects already underway are less exposed and the broader demand for
computing capacity is unlikely to disappear.
Data centers most at risk are those that have not yet broken ground:
• BMI, the research division of Fitch Solutions, views a national moratorium as unlikely and notes that 2027
construction schedules are largely locked in. Greater uncertainty begins with projects scheduled for 2028 and
beyond.
• BMI estimates that 53% of hyperscaler pipeline growth is concentrated in newly flipped governor states such as
Texas, Georgia, Ohio, and Pennsylvania.
Source: Kestra Investment Management with data from Cleanview. Data as of November 4, 2026.
Nearly 60% of Planned U.S. Data-Center Capacity Faces Policy Uncertainty
Policy changes could require developers to bear more of their power and grid costs, secure additional clean energy,
or provide greater transparency to local communities. Projects with secured power, permits, committed tenants, and
strong financing should be better positioned, while more speculative projects could be delayed or dropped.
A slower buildout would not necessarily be negative across the industry. Existing capacity could become more
valuable, while greater scrutiny could force technology companies to be more disciplined about capital spending and
expected returns.
While the policy outlook changed this week, the fundamental backdrop changed much less than stock prices. Demand
for computing capacity remains strong, projects already underway are less exposed to future policy changes, and
corporate earnings remain healthy and increasingly broad.
What’s Next for the Market?
A 4% decline in a single day is unusual, but it has not historically been a reliable signal of what comes next. While
returns vary considerably following these episodes, stocks have generally recovered over the following months,
illustrating the risk of reacting to a sharp one-day move by reducing long-term equity exposure.
Past performance does not guarantee future results. Indexes are unmanaged and not subject to fees. It is not possible to invest directly in
an index. Source: Kestra Investment Management with data from Bespoke Investment Group.
S&P 500 Average Change After 4%+ One-Day Declines
What It Means for Portfolios
Company fundamentals are strong, providing an important counterbalance to recent market volatility. Importantly,
earnings growth is broad: while 2023-2025 earnings growth was concentrated in the largest tech companies in the
world (The Magnificent 7), this year, the remaining 493 companies in the S&P 500 are outpacing the earnings growth of
their mega cap counterparts.
Past performance does not guarantee future results. Indexes are unmanaged and not subject to fees. It is not possible to invest directly in
an index. Magnificent 7 represents Apple, Amazon, Google, Tesla, Microsoft, Nvidia, Meta. S&P 493 represents S&P 500 companies excluding the
Magnificent 7. Source: Kestra Investment Management with data from FactSet. Data as of October 30, 2026.
S&P 500 3rd Quarter Earnings Growth: “Magnificent 7” vs “S&P 493”
It’s worth repeating that days like today show the value of diversification, as high-quality bonds rose while stocks fell,
helping offset some of the equity losses in balanced portfolios.
Conclusion
AI-related spending is on pace to become one of the largest infrastructure buildouts in history. It is only natural that a
cycle of this size would eventually encounter constraints, whether from power availability, permitting, financing costs, or
greater scrutiny of the returns on each new dollar invested.
The AI cycle is also maturing. Competition is increasing, funding is more expensive, and investors are becoming more
discerning about which companies can turn large investments into sustainable earnings and cash flow. That greater
differentiation may create volatility, but it is also a sign of a market becoming more disciplined.
A slower pace of data-center development could have benefits as well. Scarcer existing capacity may become more
valuable, constraints could encourage more efficient use of power and computing resources, and a more measured
investment pace could allow companies to protect free cash flow and demand stronger expected returns before
committing additional capital.
Today’s selloff reflects a meaningful reassessment of the pace and economics of the AI buildout. It does not necessarily
signal the end of that buildout or a deterioration in the broader investment outlook. For investors, the lesson is not
to ignore the risks, but to avoid letting a sharp repricing of one investment theme drive decisions about a diversified
portfolio.
11.26 | KIM-11521-26 | ©2026 Kestra Investment Management, LLC. All rights reserved.
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