Strong October jobs, manufacturing, and services data were overshadowed by a tech selloff in response to the midterm election results. Initial market optimism over Democratic control of Congress quickly faded to concerns about tighter AI regulation and widespread voter rejection of data-center projects, driving a steep technology sell-off before markets began stabilizing on Friday. While a negative consumer attitude was forefront at the polls, the economic backdrop remains resilient, but sticky prices, geopolitical tensions, and uncertainty around the AI investment cycle point to continued volatility.
Key Highlights:
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October jobs growth surprised to the upside. Nonfarm payrolls rose 165K, topping analyst estimates of 59K. Gains were broad-based, led by professional and business services, healthcare, and manufacturing. Meanwhile, the unemployment rate edged lower to 4.10%. In addition to October’s strong payroll gains, prior months were revised higher. August moved to 186K, up 53K from the previous estimate while September’s count shifted to 60K, up 31K.
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Factory activity accelerated in October, sending the ISM Manufacturing Index to 55.5 from 54.5 in September. Numbers above 50 indicate expansion while those below signal contraction. The rise was driven by an increase in production and inventories.
- The services industry continued to expand in October, although at a slightly slower pace than in September. The ISM Services Index declined to 54.5 from 54.9 the prior month. A slowdown in business activity, new orders, and inventories weighed on the index.
Blue Wave Washes Out AI Trade
Stocks swung sharply higher on Wednesday, following Tuesday’s midterm elections. An initial wave of optimism sent old school companies represented in the Dow Jones Industrial Average up 1569.40 points as investors rotated out of tech and into more traditional sectors anticipating that AI will face a less friendly environment under Democratic control. As of Friday afternoon, with some races yet to be called, the Democrats had won 253 House seats to Republicans’ 161. In the Senate, Democrats had secured 54 seats to Republicans’ 44. Unfortunately, the market’s sanguine response was short-lived as deeper anxiety grew on Thursday as the magnitude of the lead became apparent and as the post-election priorities have started to be defined. The Dow plunged 1,833.06 points, or 3.4%, more than wiping out Wednesday’s rally. However, it was the Nasdaq Composite which took the brunt of the sell-off, plunging more than 5.5% during the session. That drove the index into correction (down more than 10% from recent highs) territory. The sell-off was driven by not only a possible increase in AI regulation amid the Democrats win but also by voters broadly rejecting data centers at the ballot box. Voters backed restrictions or rejected development measures in all but one of the 41 data-center ballot contests across 10 states. That is a brutal loss for the tech industry and comes at a time when the AI capex cycle needs more growth in order to generate cash flow, fund debt, and provide a return on investment. With the time horizon for achieving these goals now pushed out, investors were quick to sell tech, taking down the broader indices with it. With markets laser focused on the election, investors broadly dismissed the week’s healthy jobs, manufacturing, and services prints.
Heading into the weekend, markets regained some of their footing as dip buyers waded back into tech stocks, sending the Nasdaq Composite and S&P 500 higher. With the initial reaction cooling, investors and markets now turn to the challenges that lie ahead for the new Congress. Democrats may have won by campaigning on affordability, delivering on that promise will be much harder to accomplish. Sticky prices and geopolitical tensions have been in place for several years, pre-dating the current administration. Even if tariffs are taken off the table, strong demand on the AI front could keep prices elevated for some time. The AI industry is not one to be stopped as it has ushered in strong economic growth that’s allowed the U.S. to continue expanding. Lawmakers are more likely to rein in, rather than all-out stop the AI buildout. That bodes well for tech stocks, the broader economy and markets. If history is any guide, the current volatility could provide an opportunity for investors as markets have tended to move higher after midterm elections. The S&P 500 has averaged a 13.70% one-year gain after 11 midterm elections since 1980. After elections that result in a divided government, the average one-year gain is 15%. The economic backdrop remains constructive, but affordability pressures, geopolitical tensions, and uncertainty around the AI investment cycle will remain the market’s main drivers no matter who is in office.
The Week Ahead
Key reports include CPI, PPI, and existing home sales.
Mid-December RMD Request Deadline: What to Know to Avoid Penalties
Required minimum distributions (RMDs) are the minimum annual withdrawals the IRS requires individuals to take from their tax-deferred retirement accounts beginning at age 73. Strict rules govern when you must take these withdrawals, and a formula based on age and account balances determines the required amount.
Account holders are advised to submit RMD requests by early- to mid-December; requests received later are not guaranteed to be processed by year-end due to increased year-end volume. The IRS penalty for not taking an RMD or for taking less than the required amount is 25% of the amount not withdrawn. Our advisors are proactively contacting clients who may need to take an RMD to review the required amount, discuss available options, and help ensure requests are submitted in a timely manner to their custodians. If you have multiple IRAs, you will need to calculate the RMD for each account but may then withdraw the total RMD amount from one account or a portion of the total from each.
RMDs apply to traditional IRAs, SEP IRAs, SIMPLE IRAs, and many employer-sponsored retirement plans, including 401(k), 403(b), and 457(b) plans. Some types of accounts do not require RMDs during the original owner’s lifetime, such as Roth IRAs, however, beneficiaries are subject to distribution rules. The rules and the exceptions to the rules for RMDs are complex for account holders and for beneficiaries, so it’s important to speak with your advisor.
The deadline to take your first RMD is typically April 1 of the year after you turn 73, and then December 31 each following year. However, if you choose to wait until April 1 of the year after you’ve turned 73 for your first RMD, then you will be taking two RMDs that year, and they are generally taxed as ordinary income which could create a significant tax bill.
The formula for calculating one’s RMD is as follows:
RMD = December 31 prior-year account balance ÷ Life expectancy factor
Your life expectancy factor can be found in the Uniform Lifetime Table published by the IRS and is based on your age and your beneficiaries’ life expectancy. The life expectancy factor changes every year, meaning your RMD amount will also change each year. Additionally, a different life expectancy factor applies when the owner’s spouse is the sole beneficiary and is more than 10 years younger. Beneficiaries of inherited accounts may face different calculations and distribution requirements depending on their circumstances. You may withdraw more than the required minimum, but the RMD establishes the least you must take for that year.