While the last couple of days have been dramatic and uncomfortable, we do believe the recent selloff in markets is technical in nature rather than fundamental. Let us explain.

In our view, one of the proximate causes for the November 5 decline, specifically across AI-related names, was a reaction to the “Blue Tsunami” in the US midterm elections and fears around future datacenter buildouts, particularly in states like Texas. We do think these fears are overblown, particularly given statements from Texas Governor-elect, Gina Hinojosa, herself:

Our base case has been that compute capacity would come online slower than some market participants expected, and because of this, prices for companies with existing operational compute capacity are likely to trend higher on a forward-looking basis. Beyond that, datacenters remain a key economic growth driver across many states, and both Republicans and Democrats alike would like to see more jobs, not less. So, to us, there’s been no significant change.

What did change, however, was broad market positioning, which we believe presents a much cleaner setup going forward.

For context, on November 5, we saw nearly a 70% single-day relative increase in the CBOE Market Volatility Index (VIX), representing one of the largest moves since the index’s inception in 1990. Additionally, across semiconductors, we saw the second-largest single day decline in the last 20 years, representing a six standard deviation move.² Both of these events are not only extreme but incredibly rare, especially considering strong underlying fundamentals in tech, such as year-to-date earnings revisions.

Because of this, we now have a setup where the relative 12-month forward price-to-earnings (P/E) ratio of the S&P 500 Information Technology Sector relative to the S&P 500 Index is near lows last seen in late December 2018 and early January 2019.

Not only is this one of the lowest relative P/Es over the last decade, but the timing is also significant because late 2018 also marked significant midterm elections in the United States, followed by a severe post-election drawdown. While this was also an uncomfortable time, markets rebounded within a couple of months following cleaner positioning and reset valuations.

Did we just witness something similar? We think so, but time will tell.

While past performance is not indicative of future results, it is worth noting that after every midterm since 1950, the S&P 500 was higher 12 months later, albeit not in a straight line and not at the same magnitude.³

Could this time be different? Of course, and there are plenty of risks worth monitoring, whether it concerns access to capital, the pace of compute supply, or overall demand growth.

But in our view, when the underlying fundamentals remain supportive, looking through the short-term volatility has historically been consistent with compounding client capital.

END NOTES

¹Foxhall, Emily. Gina Hinojosa won the governor’s race. What happens to Texas data centers now? The Texas Tribune. 4 November 2026.

²Barnet, Jan-Patrick. Anatomy of a Selloff: Sudden Chain Reaction Rattles Wall Street. Bloomberg. 6 November 2026.

³Menton, Jess. Stock-Market Gains Are Weakest After Midterm Results Like These. Bloomberg. 4 November 2026.

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