Last Call | Breaking Down the Post Election Decline

Brent Kochuba · SpotGamma

Neocloud stocks failing to bounce with the market signals unresolved tech risk-off stress.

Kochuba watches the weakest AI cloud names (CoreWeave, Nebius, Iren) as a signal for the tech complex. These were already oversold and carried high implied volatility, and they fell on election day while the broader market rallied. Their failure to bounce with everything else after the rally, and their further losses the next day, suggested the problems behind tech had not been solved. He says the poorest-quality names not rallying is 'a very bad signal for risk in the market overall', and that the rally would be sustained only if a major event such as Nvidia buying CoreWeave restored confidence.

“Here was the bat signal that things weren't right. The neo clouds are... the problem children of the technology realm... And they were all down on Wednesday. That's election day.”at 15:36

Aahan Menon · Prometheus Research

AI capex momentum has started to crest; profits now need either more capex or record household saving.

Menon describes a capex-funded profit cycle: capex lifts corporate profits today because its costs fall in the future. For that profit cycle to continue, either capex must keep growing at the same or higher rates, or consumers must save their incomes at a historical pace almost never seen in sixty years. Both depend on the AI story: capex depends on AI conditions being good, and the saving is driven by the wealth effect from AI-linked equity gains. He says the capex momentum has started to crest and equity markets have begun to slow, which is natural at these extremes. The concern is about profits and expectations of profits, not spending alone.

“for the current profit party to continue, you need one of two things. You need either ongoing CapEx to continue at the same rate or higher rates, or you need consumers to continue to save their incomes at a historical pace that we've almost never seen”at 49:05

Matt Zeigler · Excess Returns

Governors' policy shift after the midterms threatens data center buildout; expect compromise, not a hard halt.

The midterms changed the policy environment for data centers because governors, who historically had little say, now control siting decisions. Five governorships flipped in Texas, Georgia, Ohio, Iowa and Nevada, representing about 37% of planned data center capacity. Matt argues that this puts the hyperscalers' build-out plans directly at risk, since the outcome depends on how these states' policies play out. He also notes that federal money may still be used to back state projects, so the midterms are not the final word. He expects an extended period of 3 to 6 months in which governors and politicians work through these policies, and he thinks the result will be a compromise rather than a black-and-white answer, though the nuance will not be resolved quickly.

“The midterms changed what historically is not part of what matters in midterm elections, which is these governors. Governors normally don't have a lot of say, a lot of power... We saw five governorships flip in Texas, Georgia, Ohio, Iowa, and Nevada, and that represents about 37% of planned data center capacity.”at 1:12:54

Jack Forehand · Validea Capital Management

A thoughtful, Texas-style permitting approach would slow data centers but not halt them.

Jack distinguishes between two kinds of new governors. A thoughtful approach, like the one he attributes to the new Texas governor, would address water use and ensure data centers benefit surrounding communities, and would not place them next to homes. He argues that Texas has plenty of land, so this approach makes sense. Under that approach he expects a slowdown in data center construction but not a halt. A ban on new data centers would produce a very different outcome.

“If that's what ends up happening, you might see a slowdown in data centers, but you're not gonna necessarily see, like, a halt to data centers. Whereas if they come in and be like, no more data centers, that's probably a very different outcome.”at 1:15:43

Matt Zeigler · Excess Returns

Data center build-out is deeply embedded in the US economy, so GDP depends on it happening.

Matt argues that the data center build-out is entrenched not only in capital markets but also in the broader economy. He says GDP is effectively a bet that this build-out actually takes place, which is why a policy shift that slows data centers matters beyond the AI trade. The argument is brief and rests on the scale of planned capacity and its economic weight rather than a detailed calculation.

“we know how well entrenched this is, not just in capital markets, but also in the economy. The economy... GDP is a bet on this actually taking place right now.”at 1:15:53

Aahan Menon · Prometheus Research

Elections rarely matter for markets unless fiscal policy stance materially changes.

Menon says his team's usual conclusion is that elections do not matter much for markets unless there is a very material change in fiscal policy. The argument rests on the expectation that spending and fiscal policy stay on course after a midterm, so the election itself should not change the economic outlook. The cold-open remark gives no further evidence, so the view is a stated framework rather than a detailed case.

“We generally come to the conclusion unless that there's a very material change in the fiscal policy stance, elections don't really matter that much.”at 1:47

Brent Kochuba · SpotGamma

The Democratic sweep was largely priced in; the surprise was its extremity, such as Texas flipping.

Kochuba argues that the market had priced in a Democratic sweep before the midterms, since the models pointed that way. Health care stocks rose and AI-related names weakened into the vote, which he takes as evidence that the market was pricing the outcome. What may have caught investors off guard was the size of the sweep, including the flip of Texas, and its consequences for AI spending. He argues this extremity, not the direction of the result, generated the surprise volatility.

“I think a lot of it was being priced in already. Like, people knew it was gonna be a democratic sweep. I don't think that was really surprising.”at 13:26

Ben Hunt

Midterm results made the limits of Trump's presidential power common knowledge, a lasting clearing event.

Hunt compares the Tuesday election result to the Biden debate performance, which he calls a common-knowledge moment. Once everyone sees that everyone else sees a reality, the shared belief that sustained the political story collapses, and the internal group can no longer keep the story going. He argues the election did the same for Trump and his presidency, so the limits on presidential power are now common knowledge. The implications for markets are mixed: some are positive and others, such as the sell-off seen on the Thursday after the election, are negative. Hunt says this is a 'seminal moment' that will shape the political and economic environment for the next couple of years.

“My view is that the Tuesday night election results were a similar common knowledge moment for Donald Trump and his presidency.”at 32:24

Ben Hunt

Trump's unilateral power has broken after the election; capricious executive action no longer works.

Hunt argues the midterm result showed that Trump has lost the political pull he used to override the Republican Party and the country. He compares it to the Biden debate performance: once the leader's authority is visibly broken, it does not come back. He cites J.D. Vance breaking from Trump the morning after the vote, blaming the war and the Israel relationship. Unilateral executive action only works if everyone believes in it, and the election made that belief collapse. He says the old efforts to explain away the result (rigged election, Biden just had a cold) have failed. He expects the next narratives to focus on governing and on 2028 candidates, and says the nominee will not be a Trump-picked candidate.

“So the emperor has no clothes... he's got no juice... The unilateral force of will that he exerted over the Republican Party, over the country at large, it's gone.”at 35:30

Aahan Menon · Prometheus Research

Oil shock plus strong nominal demand drive US inflation more than data center buildout does.

Menon argues the more important inflation driver is oil, not data centers. Oil prices have risen between 50% and 60% over the past year, even after a couple of weeks of selloffs, and that pressure passes through the whole economy. The AI capex story may have a marginal effect. The two drivers he emphasizes are very strong nominal demand, which he sees across the board, and the oil supply shock. Together they keep the economy in an inflationary backdrop.

“the CapEx story might be marginally impactful to the inflation dynamic, I think that the real underlying story is that one, you have really, really strong nominal demand in the economy... And two, you have this oil supply shock.”at 51:27

Aahan Menon · Prometheus Research

Nowcast below 2% reflects oil volatility; core stickiness means reduced bond pressure may not persist.

Menon's inflation nowcast has fallen to around 2%, but he explains that the model forecasts month-on-month inflation, which is very sensitive to energy when oil volatility is this high. The core components are sticky, so the lower reading is mostly energy-driven. He says the nowcast is signaling less pressure on fixed income markets. The question is whether that relief can persist, and it can only if oil keeps falling. He declined to say bonds are the best, though he has been known for calling them the worst.

“So month on month inflation, when you have oil volatility as high as it is today, is very, very sensitive to what happens to the energy complex... for that reduction of pressure to persist, you have to have oil continuing to fall the way it is.”at 52:17

Eric Pachman · Data for the People

PPI inflation is broadening; a third of items by weight sit unusually far above their averages.

Pachman built an item-level PPI visualization. The final demand PPI reads 6.3%, and jet fuel is up more than 100%. Just over 22% of PPI items are more than one standard deviation above their historical average, but by weight the share is 33.3%, versus only 60% at the 2021-2022 peak. The share more than two standard deviations above average is 46% in 2021-2022, which is well short of that now, but it is creeping up from near zero in 2014. He calls this relatively broad-based inflation. Producer price increases either flow through to consumers or squeeze producer margins, so investors should not be happy either way.

“[33.3%] of all the items by weight are actually one standard deviation or above where they have been in the past going back to all the data that we have.”at 58:49

Eric Pachman · Data for the People

Long-distance trucking costs are spiking, which does not portend well for grocery prices.

Among the items most out of line in PPI, Pachman highlights long-distance motor carrier trucking, which he says is going haywire right now. He links it to the consumer: freight costs feed into what shoppers pay for groceries and anything that moves by truck. This is part of the broad cost pressure in producer prices he describes from the energy disruption.

“the long distance motor carry, trucking, that kind of stuff. It's kinda going haywire right now, which, again, doesn't portend well for all of our groceries and stuff like that.”at 1:01:27

Eric Pachman · Data for the People

Hormuz rerouting has crippled tanker supply, pushing freight rates from $20-30K to over $1M a day.

Pachman explains that the Strait of Hormuz is disrupted. Only a few shuttle tankers will take the risk to cross, about 30 vessels have been hit through October 27, and the trip now needs two tankers handing off at sea instead of one. Other tankers are taking long detours that double voyage time from about 20 days to 40. Each change roughly halves effective tanker supply on the route. Tanker rates are now around $1.2-1.3 million a day versus a normal $20-30,000, and the crunch affects VLCCs, Suezmaxes and Aframaxes across the market, not just Hormuz lanes.

“Tanker rates are up to, like, one point two, one point three million dollars a day when normally they're, like, 20 to $30,000 a day.”at 1:06:55

Eric Pachman · Data for the People

Oil markets face a long COVID-style recovery; a peace deal would not quickly restore flows.

Pachman says oil is a paper number on screens, but at the end of the day it has to be transported, refined and burned. The tanker chaos, refinery and supply chain problems, and lost vessels mean the system cannot be snapped back into place. He compares it to COVID for oil markets: you can't just apply a vaccine and expect a fast recovery. A rumored peace deal would not immediately fix transport, because tanker capacity is too expensive and scarce. He expects a long road ahead.

“we have created COVID for oil markets. It's that simple... you can't just snap your fingers... This is a... We have a long road ahead of us.”at 1:07:56

Eric Pachman · Data for the People

SPR loans are flowing to traders, not refiners, and could leave the US exposed in 2027.

The government offered 40 million barrels from the Strategic Petroleum Reserve as a loan, with a premium and a return promise that Pachman says may never happen. Loans from 2022 are still unreturned about a year and a half later. The first FY27 release was almost fully subscribed (16.75 of 17 million barrels), mostly by oil trading firms. Curves are in backwardation and arbitrage windows are open, so traders can lock in profits on day one and resell the oil to the global market, not to refineries. This is the first time the government has tried this loan structure, which he considers dangerous. It could leave the country badly exposed in 2027 if the oil shock continues.

“Because the curves in backwardation and because the arbs are open and because they can basically get this oil for free, lock in their profits on day one through financial markets... So this oil is not going to refineries.”at 1:09:39

Jack Forehand · Validea Capital Management

Optimistic about AI's long-term future, but concerned about the heavy debt taken on to fund it.

Forehand notes that the AI trade has held up the whole market and that his firm is very optimistic about AI over the long term. He balances that against the large amount of debt that has been taken on to build out AI capacity and against a changed political landscape. He also suggests the economic reality of AI may not have changed as much as the stock market reaction implies, so market and economic signals should be analysed separately.

“Obviously, the AI trade has held up the whole market. ... I think we're very optimistic about AI for the future, but also there's been a lot of debt has been taken on, and we're in a changed political landscape.”at 4:32

Matt Zeigler · Excess Returns

US growth is still slowing but not contracting; GDP and earnings have not turned negative.

Zeigler says that in conversations with clients, growth still looks slower but not absent. The economy has not yet flipped to a regime in which corporate earnings or GDP turn negative, and no other major shock has occurred. Despite liquidity pinches and volatility, he sees the current environment as one to stay the course rather than batten down the hatches, though the view is largely a qualitative read rather than data-backed.

“right now, it still looks like slower growth, but not necessarily no growth. We haven't flipped that we haven't flipped that role yet, where we go corporate earnings are all of a sudden going negative”at 4:44

Brent Kochuba · SpotGamma

Volatility premium collapsed after the election, then blew out, showing flow-driven rather than fundamental moves.

Kochuba measures the spread between VIX and one-month realized S&P volatility. It was about five to six points before the election, compared with a historical norm of three to four, and fell to about four points after the result as the premium was monetized. The next day it widened to about 11 points, and Nasdaq volatility moved even more. Because options markets were driving the price action, the post-election rally and the sell-off look like the unwinding of volatility positions rather than a fundamental reassessment of stocks.

“And then yesterday, that number expanded to 11. Right? So like things really got and got got squirrelly at one point is even 15. So let volatility, you know, premium really widened out.”at 10:29

Brent Kochuba · SpotGamma

The Anthropic IPO could pull about $1T of capital from equities, a headwind for tech stocks.

Kochuba expects the Anthropic IPO, expected within about ten days and valued at around $1.2 to $1.5 trillion, to draw heavily on investor capital. Funds will have to raise cash to buy the new shares, which would be funded by selling existing Nasdaq holdings. He draws a parallel to the SpaceX IPO in June, which coincided with a 5-6% drawdown. He notes that the IPO is not the sole cause of the sell-off but adds a headwind to equity prices and to tech in particular. The IPO's timing, around Nvidia's earnings and OpEx, is part of why he considers the market fragile in the near term.

“A lot of people have to raise capital. Big funds have to raise cash, right, to buy anthropic, and it's probably gonna go into the Nasdaq pretty quickly.”at 28:27

Ben Hunt

Capricious tariff threats are over; Trump can no longer make them credible after the election.

Hunt's argument is that tariffs used as an unpredictable weapon of policy are finished. Because the president's unilateral will has been repudiated by the election, markets should stop pricing sudden tariff escalations. He puts escalating the war in the same category, saying it is also no longer possible. He says this holds regardless of the merits of the tariffs, because the mechanism depended on everyone believing the president could act unilaterally, and that belief is gone.

“So what does that mean? What that means is tariffs as this capricious weapon of policy? Gone. Forget about it. It's just not going to happen.”at 36:54

Ben Hunt

AI is becoming a partisan red-versus-blue issue, which Hunt sees as dangerous for the country.

Hunt says political entrepreneurs on both the left and right are deliberately making AI a partisan dividing line. Democrats are positioning themselves as the anti-AI party, and the White House is pushing the idea that it is the AI-forward, pro-implementation party. He calls this dangerous. He points to counter-moves in the middle: Texas Governor Hinojosa saying everything permitted so far is fine and nothing should be cut, and Gavin Baker saying the two sides can work together. He says the thing to watch in narrative work is how far left and right succeed in making AI a politically defined issue, since that will drive market outcomes.

“AI is being auto tuned on a red versus blue dimension. And that I'll call them political entrepreneurs on the left and the right are actively trying to do that.”at 38:31

Aahan Menon · Prometheus Research

US fiscal stance is unlikely to change under either party, so elections matter little for markets.

Menon's framework, developed after studying whether elections generally matter for markets, concludes they only matter if there is a very material change in fiscal policy stance. He argues the US fiscal dynamic is unlikely to change regardless of which party wins, so the election does not change how Prometheus runs its framework. The only major channel the election could affect is the Iran war, which he says will not change until later next year.

“unless there's a very material change in the fiscal policy stance, elections don't really matter that much... the fiscal dynamic in The United States is unlikely to change regardless of party.”at 43:15

Aahan Menon · Prometheus Research

Oil supply disruption through the Strait of Hormuz will persist; the election won't quickly change Iran dynamics.

Menon says the only real major change the election could bring is to the Iran war dynamic, and even that will not happen until later next year. Since geopolitical risk is already largely priced in and operating through the Strait of Hormuz has become risky, supply problems in oil markets will continue. Combined with fiscal policy that is not going to change, he sees little change in the war or in oil from the election.

“the only real major change that you can get out of election is a change to the Iran war dynamic... the changes won't happen until later next year... you're going to continue to have supply problems in oil markets.”at 43:33

Aahan Menon · Prometheus Research

AI-driven equity gains, not income growth, are funding US consumer spending through household wealth.

Menon says the consumer is the biggest driver of the economy, while tech investment is only about 1% of normal GDP growth. AI supports the economy indirectly through the wealth effect. Household income has grown slowly over the past year, but household balance sheets, boosted by equity holdings, have grown very strongly. So the total funds available for consumer spending have kept rising. Household sensitivity to equity markets is now at a peak relative to past decades, because the economy has become more financialized and households own more assets, so a fall in AI shares could reach consumer spending.

“there is an indirect channel through which AI is supporting the economy, which is through the wealth effect... the household balance sheet, because of equity holdings, has been growing very, very strongly.”at 45:11

Eric Pachman · Data for the People

The Fed waited too long; inflation had already peaked by the time it began raising rates.

Pachman's PPI breadth work shows that when the Fed began raising rates in 2022, about 69-70% of items were already more than two standard deviations above their average. Inflation had already peaked by the time policy tightened. He says it was wrong to call inflation temporary, and that breadth analysis like this could have caught the problem much earlier. He notes the Fed is starting to react earlier now, but he thinks the current PPI pattern is not normal.

“By the time that it started raising, there were already 69... 70% of all items that were above... deviation above their mean. So we had already pretty much peaked by the time that they were raising.”at 1:00:13