A Bigger Wave Than Markets Expected — Arta Market Brief, November 2026

Arta Investment Team

Commentary as of 5 November 2026.

Democrats won the House and Senate by wider margins than markets expected. The next day, oil fell about 8%, Treasury yields eased and stocks tied to building AI data centers sold off. We think the AI build-out continues at a slower pace and a higher cost.

The month in three points

• Politics. Democrats will control Congress from January but cannot override a presidential veto, so we expect little new substantive legislation in 1H27 and more pressure through government funding deadlines.

• Rates. The Fed held in October with two members voting to hike. Consensus if for a December hike but it could be the last for some time.

• AI. Demand for AI computing still looks strong, but spending growth is slowing and three of the busiest data-center states elected governors who campaigned on pausing new construction.

New vs. October:

Last month we said the most extreme rate scenarios looked stretched. The 10-year Treasury yield has since fallen from about 5.3% to about 4.83%, and the Fed held in October. The new factor is state politics, which now adds cost and time to the AI build-out.

1. Macro Backdrop

The Federal Reserve held rates at 3.75–4.00% on 28 October, a month after its first hike in three years. Two members dissented in favor of hiking again and core inflation firmed, so markets still expect a hike at the 9 December meeting. We think it could be the last for some time: oil has fallen since the election, and the Fed's 2027 voting rotation leaves out the four regional presidents we see as most hawkish. The Fed will also make seven rate decisions in 2027 instead of eight, which gives each one more weight.

Democrats take control of the House and Senate in January. They will not have the votes to override a presidential veto, so we expect little new substantive legislation and more of the debate to play out around fiscal deadlines. Government funding expires on 11 December and the debt limit has to be raised next year. Democratic leaders have said they will work to end the Iran conflict, and we expect them to use those deadlines to press on it, along with tariffs and last year's spending cuts. Trump has said the election will not change his approach to Iran.

2. Market Developments

In October, most of the movement happened beneath the headline index. The S&P 500 slipped about 1% for the month, while the equal-weighted version of the index rose about 5% and semiconductor stocks fell about 14%. AI-linked stocks had two sharp down days, on 14 and 22 October, and investors pulled money out of the Asian markets most tied to AI hardware. Korea's market fell about 16% in USD terms.

3Q earnings showed demand for AI is still strong while the growth rate of spending is slowing. Alphabet fell about 19% in October even as its cloud revenue roughly doubled, and Meta fell about 15% after reporting that its capital spending exceeded operating cash flow for the first time in over a decade. Cloud order backlogs are large but are converting into revenue more slowly than a year ago.

On 4 November, the day after the election, oil fell about 8% and investors rotated within the AI trade, buying the largest cloud providers and selling power and construction companies tied to new data centers. On 5 November that rotation stopped. The S&P 500 fell 4.4% and the Nasdaq-100 6.4%, their worst days since April 2025 and March 2020, and semiconductor stocks fell 12%. Selling was heaviest in the companies most exposed to how many data centers get built and how quickly: chipmakers, power producers, construction firms and newer cloud operators.

3. Asset Class Perspectives

Equities. We expect the AI build-out to continue more slowly and at a higher cost. That tends to favor companies with capacity already built and strong balance sheets, and to weigh on suppliers whose valuations assume uninterrupted growth, a risk we flagged in October. October's gain in the equal-weighted index is also a reminder that the typical stock trades at a lower valuation than the largest names.

Bonds. Treasuries rallied during October's AI-led selloff, as they tend to when growth worries pull stocks lower. They hedge less well when energy drives the selloff, because higher oil pushes inflation and yields up while stocks fall. The drop in oil since the election reduces that risk without removing it. In our view, intermediate maturities offer a better balance than the longest ones.

Derivatives. As often happens in derivative markets, investors sought the downside they didn’t think they needed after the chip selloff started. Chipmaker put skew sharply increased over the course of the month as call skew remained approximately flat. Meanwhile on the index side, options priced in more risk than October delivered, but on 5 November the index caught up, making further downside protection much more expensive. Risk-seeker may take advantage, while cautious ones should be aware that buying protection on the index may not save their individual positions.

Private markets. Stress around AI is showing up first in financing: AirTrunk pushed its planned Singapore data-center REIT listing into 2027 despite offering a yield of about 6%. Projects that already have power and permits look better placed than those still waiting for approval, and we expect third-quarter private valuations to start reflecting higher rates.

4. What We're Watching Into December

• The Fed on 9 December. Markets expect a hike, so all eyes are on the dot plot. We will be watching whether the Fed signals that this hike is the last one for now, and the jobs and inflation data released before the meeting.

• The 11 December funding deadline. Congress has to extend government funding before the new majority takes over, and we think a short extension into early next year is the most likely outcome. Any attempt to attach conditions on Iran or tariffs would feed directly into oil prices.

• Data-center permits. The Texas legislature meets from January, and the governor-elect has called for a pause on new data-center construction until it acts. We will be watching how many projects are delayed or move to other states, and what the largest cloud providers say about 2027 spending.

Common questions

Should I change my portfolio because of the election?

We don't think the result on its own is a reason to change a long-term plan. Elections tend to move individual sectors more than diversified portfolios, and divided government makes large policy shifts less likely. It is a good moment to check for concentration you did not intend, particularly in AI-linked stocks, which have moved sharply in both directions this autumn.

Is the AI trade over?

We don’t think so. Demand for AI computing still exceeds supply, and the largest cloud providers have order backlogs in the hundreds of billions of dollars. What has changed is the pace: spending is still rising but more slowly, and state-level opposition adds cost and time. That tends to favor companies with capacity already built over the most expensive parts of the supply chain.

What should I do after this week’s selloff?

Sharp one-day drops are unsettling, but on their own they are rarely a reason to change a long-term plan. It is a good moment to check whether AI-linked stocks have become a larger share of your portfolio than you intended. You may also wish to review the overall level of risk in your portfolio if you can’t stomach the moves you’re seeing.

— Arta Investment Team