One Election, Multiple Market Reactions

Doug Walters, CFA

Election week gave investors a remarkable demonstration of how quickly market narratives can change. Stocks rallied Wednesday, AI-related investments sold off sharply Thursday, and portions of those losses were recovered almost immediately. This week, we look at why staying invested can feel hardest when it matters most, and why preparation before volatility arrives can make disciplined investing possible.

Hand-drawn lighthouse standing steady against ocean waves, symbolizing resilience through changing political and financial conditions.

Contributed by Doug Walters, David Lemire, Max Berkovich, Matthew Johnson

Two weeks ago, before the election, we wrote that predicting the winner was only the beginning of what an investor would need to get right. You would also need to predict what policies would follow, how businesses would respond, what markets had already anticipated, and finally how asset prices would react. Last week could not have demonstrated that more perfectly.

A fleeting moment of certainty

Democrats scored surprising victories Tuesday, winning control of Congress along with a number of governorships. Markets initially seemed to welcome the certainty. Markets initially appeared to welcome greater clarity around the election outcome. Stocks rallied Wednesday, while oil prices fell sharply amid a changing geopolitical outlook.

Then Thursday happened

Investors began focusing on what the election might mean for the enormous buildout of artificial intelligence infrastructure. Data centers had become an election issue themselves, with voters expressing significant opposition to new development in their communities. Attention then shifted to the possibility that new restrictions on data-center construction could affect future AI spending.

The S&P 500 fell 4.4% on Thursday. Some of the companies most closely associated with the AI boom fell considerably more. Nvidia dropped 9.3%, AMD 17.3%, Micron 17.5%, and Broadcom 10.4%.

It was the kind of day when doing something can feel considerably more comfortable than doing nothing. So, what did we do? We did not make reactive changes simply because markets had fallen. We continued our normal work of following the evidence and managing portfolios according to their established strategies.

It certainly doesn’t mean the election, potential changes in data-center policy, or the risks surrounding AI investment are unimportant. It just means that we prepared for the inevitable uncertainty.

Preparation in practice

We have spent much of this year discussing risks associated with AI-related concentration and the amount of capital flowing into the theme. We have sought to maintain participation in long-term growth while avoiding excessive dependence on a small group of companies or a single market narrative. More broadly, our investment process uses diversification, asset allocation, rebalancing, tax management, and risk controls to prepare portfolios for environments we cannot predict.

None of that is meant to suggest our portfolios did not decline. Of course they did. What it means is that when uncertainty struck, we were confident that our portfolios were built to weather the storm.

The risk of market timing

Consider what would have happened had an investor looked at Thursday’s headlines and declines and decided the prudent thing was to sell. The decision would certainly have felt reasonable. There was a new political reality, a plausible threat to the investment thesis that had powered some of the market’s biggest winners, and rapidly falling prices to reinforce the concern.

But selling creates another problem. When do you get back in? By the end of the day this Monday, technology shares were already recovering some of Thursday’s losses. Micron, for example, recovered nearly 12%. Nvidia failed to rebound, but that was presumably in large part due to company-specific issues that we will leave to the tabloids to report on. And remember AMD, which was down 17.3%? The stock rallied nearly 26% from those Thursday lows. The S&P 500 from the market close on the Monday before the elections to the close one week later was actually slightly up.

Building for the long-run

That doesn’t mean Thursday’s concerns were wrong. We have no idea how data-center policy will ultimately evolve, how companies will respond, or where AI-related investments go from here. Good investing does not require market timing and crystal balls. It requires building a portfolio for the long-run.

We wrote earlier this year that volatility does not create weakness in a portfolio so much as reveal it. Last week offered that philosophy a useful stress test. The ability to stay invested when things look bleak isn’t created on the day the market falls. It is earned through the preparation that came before it.

Uncertainty is the only certainty there is, and knowing how to live with insecurity is the only security.
John Allen Paulos

One thing to watch

Last week’s decisive election results removed uncertainty about who will control Congress, even if the economic and market consequences remain far less certain.

This week, attention shifts back to the economy, with October’s Consumer Price Index due Tuesday morning and the Producer Price Index following Friday. With inflation still important to the outlook for interest rates, investors will be watching for evidence that price pressures are either easing or proving more persistent, which could influence expectations for the Federal Reserve and financial markets.

About Strategic

Founded in 1979, Strategic is a leading investment and wealth management firm managing and advising on total client assets of over $3 billion, as of 6/3/26.

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