For live links and tables go to discussion.fool.com - Control panel post election hype

Last week's election has had an immediate impact on the markets. That’s because the election was at least partially powered (at all levels, from local to national) by the overwhelming push-back against AI data centers. And the SPX (and especially the NAZ) have been powered by AI trades into a historic bubble.

wsj.com - Dont trust the markets knee jerk reaction to the midterms

Don’t Trust the Market’s Knee-Jerk Reaction to the Midterms
Politically driven trades can be justified, but they might backfire once postelection hype settles down

By James Mackintosh, The Wall Street Journal, Nov. 8, 2026

...
The problem for AI is new governors who promised moratoria on data centers, including some in states with a lot of construction planned, such as Texas and Ohio...

After an election, the consensus frequently swings toward an investment thesis so obvious that few could disagree—yet it ends up losing money, even if it eventually comes good...

[snip several examples of trades that reversed]

I thought chip and data-center stocks ought to be a lot cheaper given the risks hanging over them. The new politics adds another threat—but is probably not as severe as the consensus trade suggests. When it comes to politics and the markets, no one knows anything. [end quote]

That’s right. When it comes to politics and the markets, no one knows anything. Especially when both the technology and the politics are in flux. And especially when the market is in a bubble that is driven by AI companies who are vulnerable to open-source competition from China as well as low-priced distilled AI applications driving down demand for expensive frontier AI.

The stock market carnage last week was focused on tech-related issues. This can be seen in the drop in NAZ and the SPX relative to the DJIA. VIX (volatility of the tech-driven SPX) was higher relative to VIXEQ (the equal-weighted SPX).

With the risk premium for holding equities compared with Treasury bonds close to zero, traders have been shifting toward the certainty of high Treasury yields.

The entire Treasury yield curve continued to drop (rising bond prices cause falling yields). The yield curve is relatively flat. Investors are only being paid 0.35% more for buying 10 year Treasuries relative to 2 year Treasuries.

High-yield credit is falling relative to Treasuries. The junk bond spreads over Treasuries are widening. This is a trend change that began at the start of October. Credit spreads widening ahead of an equity sell-off is a classic macro divergence. Fixed-income markets began pricing in higher borrowing costs, debt refinancing hurdles, and capital expenditure drag—especially for lower-rated or highly leveraged tech and infrastructure borrowers.

The trade is risk-off. The Fear & Greed Index is in Extreme Fear.

Gold, silver and oil are in falling trends. USD is stable.

The economy continues to grow.

Economic activity in the services sector continued to expand in October, say the nation’s purchasing and supply executives in the latest ISM® Services PMI® Report. The Services PMI® registered 54.5 percent, the 28th consecutive month in expansion territory. The Manufacturing PMI® registered 55.5 percent in October, 1 percentage point above the September figure of 54.5 percent. The overall economy expanded for the 24th month in a row.

The Atlanta Fed’s Fourth-Quarter GDPNow Estimate for 2026:Q4 is 3.4%. This is a strong but potentially achievable growth rate. Percent Change in Real GDP in 2Q26 was 2.2%.

The Cleveland Fed’s Inflation Nowcast is much higher than the Fed’s target of 2.0%.

The options market predicts a 75% probability that the Fed will raise the fed funds rate by 0.25% in December.

wsj.com - The democratic surge will cap trumps reach at the fed
A new Democratic Senate majority will have the power to block any allies President Trump might seek to install on the Federal Reserve Board.

Kevin Warsh has stated that fighting inflation is the first priority of the Fed. The Supreme Court has defended FOMC member Lisa Cook, who voted to raise the fed funds rate in September, against bogus accusations.

The markets will read this as “higher for longer” for the fed funds rate, which impacts short-term loans like credit cards - and margin loans.

Despite this, Margin, which closely correlates with SPX, continued to climb in September although it is not yet back to the record set in June 2026 when the climb of the SPX plateaued. The problem is that the combination of Extreme Fear, high stock market margin and a tight (and rising) fed funds rate could lead to sudden selling.

The markets will probably be discombobulated for the next couple of weeks until potential new trends firm up.

But the tightening of junk bond spreads is an early warning sign. From Gemini:

The relationship between high-yield credit spreads (HY OAS) and equity market drawdowns during Federal Reserve tightening cycles provides a structural early-warning mechanism. Because fixed-income investors prioritize capital preservation over capital appreciation, the bond market historically identifies corporate balance sheet vulnerability long before equity markets digest the risk. ...

Stocks often continue rallying late in tightening cycles due to momentum, retail sentiment, or earnings concentration in low-leverage mega-caps. Eventually, high interest costs and tightening credit drag down corporate earnings and trigger forced margin unwinds, initiating an equity drawdown...

The 400–500 bps Rule of Thumb: Historically, when ICE BofA High Yield Option-Adjusted Spreads (HY OAS) cross 450–500 basis points during a Fed tightening regime, systemic de-risking in equities accelerates rapidly.[end Gemini]

Gemini listed four cycles since 2000 with this pattern, each with major SPX drawdowns. The High-yield Option-Adjusted Spread is currently 3.48%. The distressed end is 13.2%. Wow!

The METAR is cloudy with periods of sun and showers. But the METAR is only a short-term forecast. Remember what happened in 2008 when President Bush handed President-elect Obama a poop on a platter - the 2008 financial crisis.

Wendy

ismworld.org - ISM PMI reports

ismworld.org - ISM PMI reports

cmegroup.com - Cme fedwatch tool

ICE BofA US High Yield Index Option-Adjusted Spread