Wall Street closed out October with a notable retreat from technology shares, as investors grew more cautious about the enormous sums big technology companies are spending to build artificial intelligence infrastructure. The pullback sets up what analysts are calling a pivotal week ahead, one that includes Tuesday's midterm elections, Apple's quarterly earnings report, and Friday's October jobs report, any one of which could move markets.
Market watchers say the midterms themselves are unlikely to be the main driver of trading. One chief market technician has warned that the S&P 500 remains vulnerable to a further pullback given how much of this year's gains have been concentrated in a handful of AI related names. The bigger question hanging over the market is whether spending on data centers, chips, and cloud computing capacity by the largest technology companies will keep paying off in revenue, after several disappointing updates from major cloud providers raised doubts among investors.
Apple's earnings report carries extra weight this week because the company has largely stood apart from the sharp swings seen in other large technology stocks this year. That has made its results a closely watched signal for whether investor confidence in big tech can hold. Adding to the pressure, one major bank analyst removed Apple from its list of top investment ideas on Friday, citing concerns about what lies ahead for the stock, even as many other investors remain broadly constructive on the market's prospects.
History offers the market some reassurance. Going back to 1934, the Dow Jones Industrial Average has gained an average of 2.8 percent in the eight trading days surrounding past midterm election days, according to the Stock Trader's Almanac. November is also seasonally the strongest month of the year for the Nasdaq during midterm election years, with the index rising an average of 3.5 percent, the same almanac shows, as markets typically enter their strongest six month stretch of the calendar.
Apple reports earnings this week, followed by the government's October jobs report on Friday. Together with the midterm results, those two data points will set the tone for markets heading into the end of the year.
Why are investors worried about tech stocks right now?
Concerns are growing about whether heavy spending on AI infrastructure by large technology companies will keep translating into revenue growth.
Do midterm elections usually move the stock market?
Historically the effect has been muted, though the Dow has gained an average of 2.8 percent in the eight trading days around past midterm elections since 1934.