Wall Street’s blue-wave hangover: why a Texas governor matters in Johannesburg

America’s midterm “blue-nami” took 24 hours to sink in. When it did so last night SA time, the S&P 500 lost 4% and the Nasdaq more than 5%. The Economist explains why. Democrats now control the states where the AI data-centre boom was meant to be built, starting with Texas. Chipmakers and power suppliers took the worst of it. Why should South Africans care? Because our market rides the same tech wave, with Naspers and Prosus carrying much of the JSE’s weight. The possible upside: investors are buying US Treasuries, and lower US yields usually suit the rand..From The Economist, published under licence. The original article can be found on www.economist.com© 2025 The Economist Newspaper Limited. All rights reserved..The Economist.Strip out politics and artificial intelligence from a discussion of markets and you would be left with a short conversation. Or, on November 5th, none at all. After a bouncy post-election trading session the day before, investors seemed to have concluded that America’s midterm election “blue-nami” was bad for AI. Given that the tech investment boom has helped propel the American economy in the past couple of years, and in a market where AI drives nearly all the ups and downs, this conclusion has sent stocks tumbling across the board. The benchmark S&P 500 index shed 4%. The tech-heavy NASDAQ index lost more than 5%.Investors are right to worry. In Texas, the destination for around a third of the new capacity planned for America over the next two years or so, the Democratic governor-elect, Gina Hinojosa, has endorsed an extended moratorium on approving new construction until lawmakers can work out how to wring concessions from tech firms. She will have allies in the state capitol, where the Democratic Party wrested control of the lower house for the first time in more than two decades. Democrats also took the governorship in Georgia and Ohio, two other states for which AI builders had big plans, and kept it in a third, Pennsylvania.The biggest losers were the dearest of the AI darlings: CoreWeave and other “neoclouds”, which operate data centres on behalf of clients; AMD, Micron, Nvidia and other chipmakers, which furnish the silicon; the chipmakers’ suppliers, such as Applied Materials; and power companies such as Bloom Energy, which provide the electricity. Investment banks underwriting the listings of frontier AI labs, most imminently Anthropic, and private-markets giants that help finance the buildout also took a beating. Morgan Stanley gave up 6% of its value. Apollo lost more than 4%. And you really don’t want to be Elon Musk, who has hitched his car, rocket and AI ventures’ fate to Texas—and to the Republican Party.Yet not all AI stocks got clobbered. The share prices of the four tech “hyperscalers”—Alphabet, Amazon, Meta and Microsoft—have given up some of their post-midterms gains but remain roughly where they were before markets closed on election day (see chart). A slowdown in data-centre construction may, after all, reward firms which already have lots of them (and which may now spend less of their cashflows on building new ones, preserving margins). Software firms such as Salesforce and Workday, which are big users of AI, also outperformed the market, though both declined..This divergence points to a big change in the “AI trade”. It is no longer homogeneous, notes Adam Parker of Trivariate Research, a research firm. Trivariate looked at eight baskets of AI-related stocks, from hyperscalers to utilities and data-centre real-estate investment trusts. It found that the data-centre hardware firms, makers of chips and their suppliers still move together. But over the past several months several other AI-linked groups have sold off alongside semiconductor firms less often.Many investors are nevertheless seeking to put distance between themselves and AI stocks. Some loaded up on “defensive” shares that tend to outperform in slumping markets; the share price of Costco, a bulk-buyers’ paradise, rose by nearly 2%. Others picked up Treasuries; in the two days after the election yields on ten-year bonds (which move inversely to prices) fell by 0.13 percentage points, to their lowest level since before a debt-panic in early September.Why did the markets take an extra day to freak out? After all, the epic scale of the Democrats’ triumph was evident before trading began in the post-election morning. Perhaps investors were hoping that Donald Trump would take a hint from voters and not reignite his war with Iran, or simply felt relief that the result was too big for the election-denier-in-chief to contest, averting a potential constitutional crisis. A lot of it almost certainly had to do with big hedge funds unwinding their pre-election positions..Read more:.US midterm elections 2026: The FT’s guide.Stock-market bulls are undeterred, arguing that the market panic does not herald a full repricing of the AI revolution. The S&P 500 is at the level it was in July, barely 6% off its record high last month and still up by 16% since a recent low in March. “Do I think we go down 60% because Gina Hinojosa is the governor of Texas? No,” says Marko Papic of BCA Research, an investment firm. Investors nursing a post-election bruising may find that to be cold comfort..Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox every morning on weekdays. Register here.Support South Africa's bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here.If you prefer WhatsApp for updates, sign up to the BizNews channel here.

Wall Street’s blue-wave hangover: why a Texas governor matters in Johannesburg

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