The midterms are approaching. What they could mean for the stock market The artificial intelligence trade, which has driven U.S. stocks to record highs, may face challenges due to the upcoming midterm elections. Potential headwinds include Democratic proposals for data center moratoriums and a more hawkish stance on China, which could affect semiconductor trade. Historically, midterm election years are associated with increased stock market volatility and potentially lower returns, especially under a divided government.

• The AI trade has significantly boosted U.S. stocks, with companies like Nvidia and Micron Technology seeing substantial gains.
• Midterm elections on November 6th could introduce volatility for AI-related stocks.
• Democrats might pursue policies such as data center moratoriums and a tougher stance on China, impacting semiconductor companies.
• Historically, the S&P 500 experiences losses in the second and third quarters of midterm election years.
• A divided government could lead to lower average returns for the S&P 500 compared to periods of single-party control.
• Other sectors like financials and defense spending could also be influenced by election outcomes.