As technology disrupts the market, US inflation data is in

By Lewis Krauskopf

NEW YORK, Nov 6 (Reuters) – Investors are being rattled heading into next week as the U.S. stock market finds itself on shaky ground as heavy selling in the crucial AI market creates unease ahead of the release of inflation data and earnings from several technology companies.

The stocks were slammed Thursday by concerns that Democrats’ widespread victories in Tuesday’s U.S. midterm elections could slow the construction of AI data centers. That has fueled concern over a trade that has been at the heart of the market’s rally this year.

The Nasdaq Composite index, with a strong technological component, closed on Thursday almost 12% below its all-time high of October 6, exceeding the 10% threshold which confirms a correction. That loss, along with other major losses for stock indexes, wiped out the previous session’s gains immediately after Tuesday’s midterm elections, in which Democrats routed President Donald Trump’s Republicans and took control of the U.S. Congress.

Technology stocks led a modest rebound on Friday, but the main indexes still posted weekly losses.

With volatility rising, tests for the market will arrive next week. On Tuesday, the government will release the monthly report on the consumer price index, perhaps the most closely watched measure of inflation. Earnings reports are expected from technology companies CoreWeave, Applied Materials and Cisco Systems.

“This is a trade with fragile dynamics,” said Marvin Loh, senior global macro strategist at State ‌Street. “There’s this overhang of regulation and political party, which I think is going to stay with us until we really get a sense of how much of a downturn we’re looking at.”

VOLATILITY INCREASED AFTER MID-TERM RESULTS

Stocks have seen wild swings following Tuesday’s midterm elections. In addition to taking control of the U.S. Congress, Democrats also won several key gubernatorial elections in data center-heavy states, such as Texas. Public backlash over environmental and other concerns related to the spread of data centers has been a major issue in the midterms.

The sharp rises in the main stock indices on Wednesday were accompanied by a fall in oil prices. That gave way to sharp declines in stocks on Thursday, when the Cboe Volatility Index also hit a seven-month high.

The selling was widespread on Thursday – with all sectors of the S&P 500 finishing lower – but it was most acute among AI and technology stocks. The S&P 500 technology sector fell 7.3%, while the Philadelphia SE Semiconductor index fell more than 12%, both posting their biggest one-day declines in more than six years.

Major indexes still posted gains for the year, with the benchmark S&P 500 up nearly 8% in 2026.

“There are a lot of cross-currents and narratives right now that people are trying to navigate in the wake of the (election) results,” said Garrett Melson, portfolio strategist at Natixis Investment Managers Solutions.

CPI TESTS BETS ON DECEMBER RATES HIKE

The October CPI report comes as investors expect the Fed to raise rates in December to combat inflation. The US central bank remained stable last month after raising rates in September for the first time in three years.

As the market faded on Thursday, traders slightly backed away from their bets on a rate hike. But following a strong jobs report on Friday, Fed funds futures suggested about an 80% chance that the central bank would raise rates at its Dec. 8-9 meeting, according to LSEG data.

Investors will also focus on the CPI report for clues on the Fed’s rate path through 2027, with about two more standard 25 basis point increases expected in total this cycle.

“If you get a hot number and then start adding additional tightening because the inflationary environment seems to be accelerating, that’s just something else that investors will have to absorb,” Loh said.

After a busy list of company results, the calendar calms down next week. Several reports could impact the technology and AI business, including CoreWeave, the cloud company at the center of concerns over funding for AI development. Its shares have taken a hit in recent weeks.

“If they have a little more cautiously optimistic view about their ability to find ways to get projects across the finish line, that I think will help alleviate some of those concerns,” Natixis’ Melson said.

Tech performance has underperformed the S&P 500 over the past month, at its highest level since May 2002, Keith Lerner, chief investment officer at Truist Advisory Services, said in a note Thursday.

“We’re seeing something of a buyers’ strike in the tech sector right now,” Lerner said.

(Reporting by Lewis Krauskopf; editing by Megan Davies and David Gregorio)