Last week the market pointed to where Fed policy lands first: on the companies borrowing hundreds of billions to build artificial intelligence. This week it emerged that a second party has a say over that investment.
The American voter.
On Tuesday Democrats won both the House of Representatives and the Senate. President Trump accepted the result, and on Wednesday the Dow gained more than 1,500 points, its best day since April 2025.
A day later that gain was gone. The S&P 500 fell 4.4 percent on Thursday, its steepest drop since April 2025, and the Nasdaq slid into a correction.
Political risk disappeared overnight. Another risk took its place.
Voters in Texas, Ohio and dozens of municipalities voted against new data centres. The market is now calculating what this year's growth is worth if part of that construction does not go ahead.
The ballot box reaches the AI buildout
The result that mattered most came not from Washington but from Austin. In Texas, Democrat Gina Hinojosa defeated Governor Greg Abbott after campaigning on an immediate halt to new data centre construction.
According to Wells Fargo, around 27 percent of planned US data centre capacity sits in that state. In Ohio, Amy Acton won on a platform that would allow new data centres only if they cover their full energy costs.
Of 41 local ballot measures on data centres across ten states, voters sided with restrictions in all but one.
Goldman Sachs estimates that temporary halts could affect around 45 percent of planned capacity expansion, although the bank expects them to be short-lived.
On Wednesday the market still drew a distinction. Suppliers of power and equipment to data centres fell hard, while the largest technology companies at one point added more than 750 billion dollars in combined market value.
Whoever already owns data centres sees them become scarcer and therefore more valuable. On Thursday that distinction vanished.
A correction in two days
On Thursday all eleven sectors of the S&P 500 closed lower. The index ended at 7,353.73, the Dow lost 1,833 points to 51,523 and the Nasdaq dropped 5.5 percent to 24,315, more than 10 percent below its October record.
Chip stocks suffered most. Micron and AMD each lost more than 17 percent, SanDisk 22 percent.
Nvidia fell more than 9 percent to 181.60 dollars, leaving it below its end-2025 level for the first time this year. The VIX, the gauge of expected volatility, touched 28, its highest since late March.
For the week the S&P 500 is down 3 percent, the Nasdaq 4.4 percent and the Russell 2000 of smaller companies 2.9 percent. The Dow lost only half a percent.
Two weeks ago the market stopped paying for growth that had to be borrowed. This week showed that permission for that growth can no longer be taken for granted either.
For a sector that carried most of this year's gains, that counts twice.
Treasuries and gold rise together
US government bond yields fell all week. The ten-year yield dropped from 4.94 percent last Friday to around 4.84 percent on Thursday.
The two-year fell 11 basis points on Thursday alone, to 4.47 percent. Investors see less room for new spending in a divided Washington, and less growth in a slower AI buildout.
The clearest difference from earlier weeks was in gold. Two weeks ago the flight to safety went to Treasuries alone and gold was sold.
This week they rose together. Gold gained around 3 percent on Wednesday, moved back above 4,000 dollars and traded near 4,100 on Thursday.
The dollar index fell on Wednesday to 101.21, its lowest since late September, and the euro rose to around 1.124 dollars. According to the World Gold Council, central banks bought 321 tonnes of gold in the third quarter, 42 percent more than a year earlier.
The Treasury helped as well. Auction sizes will stay unchanged for the next several quarters, and the ceiling for liquidity-support buybacks rises to 70 billion dollars this quarter.
Safety has two addresses again. That makes it less fragile than last week.
A selloff that does not touch inflation
The economic data gave no reason to cut rates. The ISM services index eased to 54.5 in October, but its prices paid index held at 73.0, above 70 for the seventh time in eight months.
No industry reported lower input prices, and many firms have yet to pass on higher fuel costs. ISM therefore expects more price pressure.
In manufacturing the prices index stood at 75.2.
Even so, the probability of a hike on 9 December fell from more than 82 percent on Wednesday to around 66 to 70 percent on Thursday, according to CME FedWatch. Beth Hammack and Thomas Barkin, presidents of the Cleveland and Richmond Fed, said inflation is too high and too broad, but both argued for a gradual approach.
That is the core of the week. The Fed is raising rates to slow inflation, and the inflation comes from energy.
Equities fell not because of rates but because of a political choice against data centres. A selloff driven by lower investment slows the economy without lowering prices.
Oil loses its war premium
Brent fell 8.7 percent on Wednesday to 94.62 dollars, its lowest since 31 August. Investors expect a Democratic Congress to make the war with Iran harder to sustain, and according to the New York Times Tehran is reviewing proposals from mediators on its nuclear programme.
On Thursday Brent recovered 3.9 percent to 98.29 dollars after a tanker east of the Strait of Hormuz struck a mine. Bloomberg puts the weekly decline at around 18 percent.
Not everyone believes in peace. Eurasia Group puts the odds of a deal with Iran at 10 percent, and Citi warns that the White House may feel freer after the elections to escalate on its own.
So the oil price is not falling because the strait is open. It is falling because the market sees an end to the war as more likely.
That is a premium that can return as quickly as it left.
Europe gets a fourth central bank that hikes
On Thursday the Bank of England raised its rate to 4 percent, its first increase since 2023. Eight members voted in favour and one wanted half a point.
Governor Andrew Bailey said that unless the Middle East conflict is resolved, it does not seem likely to be "the last increase." The bank expects UK inflation to peak at 4.8 percent in the second quarter of 2027.
In the euro area, inflation rose to 4.0 percent in October, the highest in more than three years, with energy 20.8 percent more expensive than a year earlier. Core inflation held at 2.5 percent.
In Paris the National Assembly voted unanimously on Wednesday evening against the revenue section of the 2027 budget, and on Thursday a national strike partly halted schools and trains. Yet the French ten-year yield fell 17.6 basis points on Wednesday to 4.77 percent, its biggest drop since April.
The spread over the Bund narrowed to around 147 basis points, from almost 160 at the start of the week. A lower oil price helps France more than its own parliament does.
Where this leaves the markets
This afternoon at 14:30 Dutch time the October US employment report arrives. Economists expect around 65,000 new jobs and unemployment at 4.2 percent.
A weak figure would lower the odds of a December hike further, but after this week it would more likely be read as confirmation of slower growth than as good news.
After that come the ten-year and thirty-year auctions on 10 and 12 November, Nvidia's results on 17 November and S&P's review of France on 27 November. The Fed decides on 9 December, two days before US government funding runs out.
Last week the market expected the Fed to break something first. This week the voter did.
Inflation has not changed, the oil price has, and the growth outlook even more so. The Fed is still aiming at prices.
The voter, meanwhile, has repriced growth.
