Dow Jones futures gains despite Democrats sweeping Congress
- US stock futures gain as investors bought the dip following a Democratic sweep of both Senate and House.
- Tech hyperscalers fell premarket over concerns that Democratic control will bring stricter AI and corporate oversight.
- Broader market caution persists ahead of Washington's upcoming decisions on the US-Israeli war on Iran.
Dow Jones futures advance 0.4% to trade around 52,100 during the European hours on Wednesday. Meanwhile, S&P 500 futures gain 0.15% to trade around 7,610 and Nasdaq 100 futures rise 0.14% to trade around 28,340.
US stock futures gained as investors digested the market implications of a Democratic sweep of Congress in the midterm elections. After an initial slide, futures pared early losses as buyers stepped in on the dip. While the Democratic victory taking control of both the Senate and the House raises expectations of tighter regulatory scrutiny, market participants also view it as a factor that will limit the scope for further tax cuts and government spending.
Concerns remain centered on the potential for stricter AI regulations and expanded corporate oversight under Democratic control. Reflecting this caution, hyperscale tech giants, including Nvidia, Apple, Microsoft, Alphabet, Amazon, and Meta, all moved lower in premarket trading.
Additionally, US index futures face headwinds as broader market caution sets in ahead of Washington's forthcoming decision regarding the US-Israeli war on Iran, coming right on the heels of the political shift in Congress.
Nasdaq reacts as Democrats flag tighter AI oversight
Analysts at Rabobank point out that the tech-heavy Nasdaq’s early weakness following the Democrat sweep was rooted in policy concerns rather than purely technical factors. They note that “Democrat candidates repeatedly spoke about more governance on AI developers in the run-up to the elections,” making “the initial pressure on Nasdaq futures from a Democrat sweep” a logical market response as investors reassessed the regulatory backdrop for the sector.
AI stocks FAQs
First and foremost, artificial intelligence is an academic discipline that seeks to recreate the cognitive functions, logical understanding, perceptions and pattern recognition of humans in machines. Often abbreviated as AI, artificial intelligence has a number of sub-fields including artificial neural networks, machine learning or predictive analytics, symbolic reasoning, deep learning, natural language processing, speech recognition, image recognition and expert systems. The end goal of the entire field is the creation of artificial general intelligence or AGI. This means producing a machine that can solve arbitrary problems that it has not been trained to solve.
There are a number of different use cases for artificial intelligence. The most well-known of them are generative AI platforms that use training on large language models (LLMs) to answer text-based queries. These include ChatGPT and Google’s Bard platform. Midjourney is a program that generates original images based on user-created text. Other forms of AI utilize probabilistic techniques to determine a quality or perception of an entity, like Upstart’s lending platform, which uses an AI-enhanced credit rating system to determine credit worthiness of applicants by scouring the internet for data related to their career, wealth profile and relationships. Other types of AI use large databases from scientific studies to generate new ideas for possible pharmaceuticals to be tested in laboratories. YouTube, Spotify, Facebook and other content aggregators use AI applications to suggest personalized content to users by collecting and organizing data on their viewing habits.
Nvidia (NVDA) is a semiconductor company that builds both the AI-focused computer chips and some of the platforms that AI engineers use to build their applications. Many proponents view Nvidia as the pick-and-shovel play for the AI revolution since it builds the tools needed to carry out further applications of artificial intelligence. Palantir Technologies (PLTR) is a “big data” analytics company. It has large contracts with the US intelligence community, which uses its Gotham platform to sift through data and determine intelligence leads and inform on pattern recognition. Its Foundry product is used by major corporations to track employee and customer data for use in predictive analytics and discovering anomalies. Microsoft (MSFT) has a large stake in ChatGPT creator OpenAI, the latter of which has not gone public. Microsoft has integrated OpenAI’s technology with its Bing search engine.
Following the introduction of ChatGPT to the general public in late 2022, many stocks associated with AI began to rally. Nvidia for instance advanced well over 200% in the six months following the release. Immediately, pundits on Wall Street began to wonder whether the market was being consumed by another tech bubble. Famous investor Stanley Druckenmiller, who has held major investments in both Palantir and Nvidia, said that bubbles never last just six months. He said that if the excitement over AI did become a bubble, then the extreme valuations would last at least two and a half years or long like the DotCom bubble in the late 1990s. At the midpoint of 2023, the best guess is that the market is not in a bubble, at least for now. Yes, Nvidia traded at 27 times forward sales at that time, but analysts were predicting extremely high revenue growth for years to come. At the height of the DotCom bubble, the NASDAQ 100 traded for 60 times earnings, but in mid-2023 the index traded at 25 times earnings.
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