US midterms: What they mean for AI and bond yields
· Pietari Laurila
For much of this year, one theme has dominated markets: AI.
According to JPMorgan, a basket of just 42 AI-related stocks has generated roughly two-thirds of the S&P 500’s returns since the start of 2024, 58% of its earnings growth and more than 80% of its growth in capital spending.
This helps explain something that may otherwise look strange. Oil is above $100, US bond yields are above 5%, and 85% of S&P 500 constituents are down at least 10% from their all-time highs. Yet the major US indices remain close to record levels.
AI has simply overwhelmed everything else.
One possible catalyst for a change in market leadership is the US midterm election on 3 November.
Affordability has become an important political issue, and AI itself is increasingly part of that debate. Data centres require enormous amounts of electricity, raising concerns about power prices and grid capacity. Several election campaigns are already focusing on these issues.
A strong Democratic result could reduce the Trump administration's political ability to push through its broader economic agenda, including support for the rapid AI and data-centre build-out. It could also bring greater regulatory scrutiny of technology companies.
If the result is divided government instead, with Democrats controlling the House and Republicans retaining the Senate, fiscal policy could become more constrained, potentially easing some of the upward pressure on bond yields.
None of this means the AI boom will suddenly end. The underlying earnings growth is real, and AI investment could remain one of the most powerful economic trends of this decade.
But markets have become extraordinarily concentrated around it. When almost everyone is positioned for the same outcome, even a relatively small change in expectations can matter.
If the midterms weaken Republican control and contribute to lower bond yields, market leadership could start to broaden beyond AI, potentially benefiting smaller companies, REITs, financials and other cyclical sectors.
Alternatively, if Republicans retain control of both the House and Senate and the AI build-out continues with little political resistance, the current trend could extend well into 2027.
The midterms could thus determine whether AI remains the only trade that really matters.