Chip stocks took a beating in the week of Nov. 2 as Democrats swept Congress and jobs beat forecasts. As Wall Street worried about what a blue wave means for big AI buildouts, the PHLX Semiconductor Index plunged 12.2% on Thursday, its worst session since the March 2020 crash. Nvidia has given up $1.4 trillion in market cap since its October peak.
According to Yahoo Finance, since last Friday’s close the S&P 500 lost 203 points or 2.68%. The NASDAQ dropped 858 points or 3.37%. While the DOW decreased 485 points or .94% as all three averages finished the week lower.
AI Giants Sit On Cash
Monday, investors were still chewing on a weekend Wolf Street deep dive into Big Tech’s war chest. The 13 largest AI-related giants sit on $1.13 trillion in cash, cash equivalents and marketable securities, per their latest quarterly filings. Alphabet, Anthropic and Amazon alone hold $511 billion of that pile. Alphabet booked negative free cash flow of $9.1 billion in the third quarter as capital spending outran operating income, yet the group has been raising cash even faster than it spends. Even if markets get ugly and fund-raising freezes, these firms can keep spending for a while longer.
Democrats Sweep The Midterm
Tuesday, voters handed Democrats decisive control of the House and a Senate majority, flipping seats in places Republicans had held for decades. Democrats won Senate races in Texas, Maine, Kansas, Ohio, Iowa and both Carolinas, and are projected to take about 245 House seats to Republicans’ 166. Trump pledged to cut deals with congressional Democrats, then posted a red hat stamped “veto.” Markets initially cheered the prospect of gridlock on Wednesday before second thoughts set in following the Midterm Elections.
Multifamily Loans Melt Down
Wednesday, the multifamily commercial real estate mess got uglier. About $2.3 trillion in multifamily CRE loans are outstanding, and Fannie Mae and Freddie Mac hold roughly $1.2 trillion of that. The multifamily CMBS delinquency rate rose to 8.1% in October, the highest since 2016. A $210 million interest-only mortgage on The Cove at Tiburon near San Francisco went delinquent after it could not be refinanced at today’s rates. Brookfield handed over the keys on The Beaudry, a new 785-unit tower in downtown Los Angeles, leaving Bridge Investment Group stuck with a $360 million defaulted loan.
Chip Stocks Get Crushed
Thursday, semiconductor stocks got the bloodletting as investors fretted that a Democratic Congress could slow data center construction. The PHLX Semiconductor Index plunged 12.2%. SanDisk fell 22.3%, Micron and AMD about 17% each, and Nvidia 9.3%. Intel is down 63% from its June high, SanDisk 66%, Micron 47%. Qualcomm set the tone after hours Wednesday with a lumpy forecast tied to data center supply strains, then dropped 9.5%. The VIX spiked from 16.9 to 28.2. Dip buyers who piled in on Wednesday’s blue-wave rally got a rough reminder.
Payrolls Beat The Forecast
Friday, the labor market looked solid and tightening. Nonfarm payrolls jumped by 165,000 in October, well above the 65,000 economists expected, and September was revised up to a gain of 60,000, per the Department of Labor. The unemployment rate edged down to 4.1%, and average hourly earnings rose 0.37% month to month, the biggest gain in 11 months. Professional and business services added 70,000 jobs and healthcare 55,000. A day earlier, the four-week average of initial unemployment claims had fallen to 194,700, the lowest since 1969. Chip stocks bounced some on the day, but the weekly damage stuck.
It’s A Wrap
A blue Congress after the midterm elections, a hot labor market and a chip-stock rout make for a tricky mix. Next week brings the October CPI report, which could firm up December Fed hike odds after Friday’s payrolls beat. Gridlock in Washington may be what equity markets think they want, until they remember they also want their AI trade back.
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