Wall Street Roars Back After Midterm Market Meltdown

Wall Street is starting the week in recovery mode after a brutal post-election sell-off last week. The Dow jumped more than 500 points at Monday's open, with the S&P 500 and NASDAQ also climbing. Joining us now to walk us through it is Dan Burns, U.S. economics editor at Reuters. Thank you so much for being here, Dan. Happy to do it. Yeah, we're so happy to have you and have you walk us through this with so much going on, so much changing. Stocks are rebounding this morning after last week's massive sell-off. So tell us a little bit about what's driving this comeback Well, pretty much the thesis is that what happened at the end of last week was a bit of an overdone there. You know, we had seen this big blue wave of election outcomes and investors really took real ran with this notion that. Democratic governors were going to put across-the-board moratorium on data center developments and further restrictions on AI almost instantaneously, and that thesis really ran with the market at the end of last week. Possibly the benefit of a couple of days of a weekend and some rethinking that, of course, that was a little bit of an overreaction and an over expectation that a blue wave of not just at the national level in Congress, but in state houses was going to result in something instantaneously that really brings an end to the AI trade that has been driving the market and a good chunk of the economy. Yeah, that overreaction makes a lot of sense, but as you kind of step back and then look at this from a broader scope, I mean, Democrats now control both chambers of Congress, so what do you think this will mean for Wall Street and President Trump's economic agenda as we move forward into the rest of this year and into next year? Well, we still have a bit of a lame duck session to get through before the new Congress is sworn in in early January. And there's a couple of things that are coming up kind of immediately, right? The Senate is, in fact, ready either later today or this week to take up what's called the Bipartisan American Affordability and Jobs Act. which has a number of provisions in there around AI, including it's meant to speed approvals for new power plants and transmission lines, while requiring the big data centers to bear more of the cost of those grid improvements. It's not clear yet what the bill's prospects are. Trump is an advocate of it. It is genuinely bipartisan. There's some Democrats who are on that as well. But others who are making the case that it perhaps gives too much of a green light to proceed with some of these data center developments that, of course, were at the center of a lot of the races that we saw last week. Yeah. And when you look at that bill, I mean, we'll see what happens with that actually going through the process here. But I mean, looking at that and looking at AI stocks, you know, with being particularly hard hit here, how worried are investors about new regulations and restrictions on data centers, whether or not this bill passes? Well, I think there's legitimate concern to be out there. It's, it's, it's. Just that, you know, the breadth of it, right? You know, Democrats do control a number of state houses that they hadn't previously, including big places, you know, like Texas, the Texas governorship, something like 80% of the AI data center pipeline is now in states controlled by a Democratic governor or Democratic legislature or both. And so there could be some restrictions coming, but they do take time. And it's unlikely that 100% of all of this development is going to be brought to a screeching halt. Yeah, we definitely have to wait and see what happens with all of that as we move forward. Looking at the overreaction that we kind of discussed from last week, we're also now seeing some analysts suggesting that that AI sell-off went so far that now it could possibly create a buying opportunity. What do you think about that? Well, I'm not an investment advisor. I just talked to some of the same people that you were talking with, and they're making that case clearly that it was overdone. You've seen what, since over the last month, about $3 trillion of market value wiped off of the S&P 500 from that record in early October. With today's gain, it's about $3 trillion, about half of that. is just one stock. It's NVIDIA, which is down about $1.5 trillion and has some of its own unique problems, as we've seen today with the news around Jensen Huang. But about $2 trillion of it is really around the eight big AI names and related carriers. So it's understandable that there's a bit of a comeback underway, unlike what we saw in the dot-com boom of almost 30 years ago What's driving these gains are companies that are genuinely profitable. They do have a lot of wherewithal. But I've been watching, in particular, the credit spreads on the tech sector and on junk bonds, and they've been widening. And that's because we've seen this big, it's not just an equity gain, there's been a big debt issuance this year to fund all these projects. And the spreads on a lot of those bonds have widened quite a bit. Yeah, so much going on within the tech sector, as you were discussing with the news today about NVIDIA and what's happening over there, as well as all of these continued investments in the AI infrastructure build out. Looking beyond tech, which sectors do you think really stand to benefit the most from the new political landscape? And also, which do you think could also suffer here? It's really hard to tell. The focus of Democrats is going to be around trying to use the budget process to win some negotiating battles with the president over trying to restore things like the tax credits that were lost for the Affordable Care Act and to expand, to restore some of the cuts to things like food aid and Medicaid. Okay, bump. Those are things that would potentially strengthen consumers and would improve their buying power. People have lost genuine buying power over the last year because real incomes, real earnings have not kept up with inflation. Now, there's a downside potential risk to Democrats succeeding in that is if you do restore some of that purchasing power to consumers that they've lost, that could actually be a tailwind for the inflation that the Federal Reserve is I was trying to contain. So, you know, it's not completely clear how that's all going to play out, but it'll be an interesting dynamic to follow. It definitely will. A lot of different factors at play there. One of them also being oil prices that are also moving a little bit lower now, finally. Although, again, we're seeing so much uncertainty here in the Middle East and what's happening with this at home. How much do you think that's helping stocks and easing inflation concerns right now, again, in this ever-changing field here? Well, it's probably helping a bit today, and it certainly is something around the margins that's helping maybe a little bit of the narrative around inflation. We've seen, I think it's U.S. Brent prices are at the lowest in a couple of months. We've seen NYMEX heating oil futures at their lowest in four or five months. Of course, that was a big concern in the Northeast in particular, where there were forecasts that the average household could spend 750 more dollars this year to heat their homes. So those are things that are helping. But are we going to go back to $3 a gallon gasoline the way we were on February 27th? That's unlikely. So these are things that are not going to fully retrace. Maybe they take off some of the pressure. At the same time, the odds of the Fed raising rates again in December are still pretty high. They've gone up today, even though we've seen that drop in oil prices. It's now a better than 85% probability that the Fed is going to raise rates when it meets in about four weeks time. Yeah, I was going to ask you about that next. I mean, we got a stronger than expected jobs report Friday. How does that change the outlook for interest rates and the Fed? And now what we're talking about is going to happen at their next meeting? Well, a report like the one we got on Friday is really going to keep the Fed's focus on inflation. They're looking at their dual mandate. There is no real friction right now on the job side of that, right? 4.1% unemployment, 100,000 more jobs than expected were created last month, and we've seen some growth again in things that have been worrying about the labor supply side of stuff. We've seen growth in the workforce. Interestingly, the growth in the workforce that we've seen over the last three months have all come from immigrants, not from native-born. And of course, that's something else that's a policy that's going to be... Some friction between Democrats and the White House over is Trump's continuing crackdown on immigration. Yeah, it definitely will be. And I mean, thinking about Democrats controlling Congress now, do you think that battles over taxes, tariffs, government spending, all of that could really create more uncertainty for investors as we move forward? It may. It's a gridlock environment to some degree. I think the big things that people really are starting to be concerned about, who we've spoken with, are some of the budget standoffs that are coming. The government runs out of funding on December 11th, so there's got to be something done in the lame duck session to ensure that there is not a government shutdown before the handover to the new Congress. And then later in 2027, of course. Unless action is taken before then, we run up against another debt ceiling issue. And we know that those negotiations could be very fraught. We would expect that Democrats are going to try to use the expanded leverage they have to win some of their battles, right, to pay, as I mentioned, to potentially restore some of that funding to some of their lost pet programs, whether it's on... healthcare subsidies or food aid or Medicaid. And we'll see just how far the White House is willing to go in not backing down on those things. And so those are stories that are really going to unfold later in the latter part, really, of 2027. Yeah, we definitely have to keep our eye on all of those. Last day, I wanted to ask you, for Americans who are watching their 401ks, is this morning's rally a sign that the worst is over, or do you think that people should really still be bracing for more turbulence ahead here? Oh, I think that there's no shortage of turbulence ahead. Now, whether that means full out corrections, you know, the S&P is down, what, about 3%. You know, it's now down less than 5% from its record high. It had been down close to 6.5%, I think, at the worst of the day at the end of last week. The NASDAQ is in correction still. It's fighting its way back. There's still a lot of uncertainty outside of the policy space just about the sustainability of the AI trade and the capital investment Your business investment contributed enormously to GDP growth in the third quarter, and a lot of that was powered by AI And there's just a lot of questions about how sustainable that is, and if there is anything that really impedes that progress on a meaningful basis from the governor of Texas or the governor of Ohio, yeah, there could be some bumps in the road ahead. We'll definitely have to keep our eyes on all of those bumps ahead and see what we have coming down the pipeline. But we really appreciate you breaking it all down for us today. Dan Burns, U.S. Economics Editor at Reuters. Thank you so much. Happy to do it.