Yicai 2026-11-08 12:19:11

Author: Fan Zhijing Editor-in-Chief: Sheng Yuan

Wall Street once again experienced a turbulent week, with the total market value of the three major U.S. stock indices evaporating by approximately $4.1 trillion. The panic in the market stemmed from the Democrats taking control of both the Senate and House after the mid-term elections in the United States. Investors were concerned about tighter regulation in the artificial intelligence (AI) industry and slower approval for data center construction, which led to a concentrated sell-off of tech stocks. U.S. Treasury yields soared after the release of the latest non-farm payroll report, further fueling expectations that the Federal Reserve would raise interest rates in December.

Next week, the U.S. stock market may continue to try to recover from the panic around growth stocks, while geopolitical risks such as the situation in the Middle East and expectations regarding Federal Reserve policy are likely to continue to disrupt the market.

FED's interest rate hike expectations in December are heating up

This week's non-farm payroll report indicates that the employment situation in the United States has improved, boosting expectations for further interest rate hikes by the Federal Reserve. According to the report from the U.S. Department of Labor, non-farm employment across the country increased by 165,000 in October, far exceeding the market's average expectation of 65,000. Employment in September was revised upward to 60,000, and in August it was revised upward to 186,000, with a net increase of 84,000 jobs.

The unemployment rate dropped from 4.2% in September to 4.1% in October, while the labor participation rate rose from 61.8% to 61.9%. Hourly wages increased by 0.4%, exceeding the expected increase of 0.3% and the 0.3% increase seen in September.

Matthew Martin, a senior US economist at the Oxford Institute for Economics, commented in an email to Yicai News reporters: "The strong growth in non-farm employment, the upward revision of previous growth figures, and the decline in unemployment rates all highlight that the labor market is gradually tightening. This allows (the Federal Reserve) to focus on inflation."

Futures pricing for the federal funds rate on Friday (the 6th) local time indicated that there was a 77% probability that the Federal Reserve would raise the target federal funds rate by 25 basis points in December, up from 67% on Thursday.

"We believe that the monthly fluctuations in data are not a driving factor for policy decisions," said Thomas Simmons, Jefferies' chief U.S. economist, in a report. "In other words, these data, combined with the long-term trend of inflation, indicate that a rate hike in December is almost a certainty."

Martin expects that the core inflation rate for October, which will be announced soon, will rise again. Therefore, economic data will prove that policymakers' recent calls for further interest rate hikes at the December meeting are justified. "However, given that most of the inflation overshoot reflects pressures from (artificial intelligence) and spillover effects from rising energy prices, technology stocks and global oil prices have recently fallen significantly due to expected tighter regulation and successful negotiations, reducing the likelihood of further interest rate hikes in 2027," he wrote.

When will the market stabilize?

U.S. stocks declined across the board in the past week, with the Nasdaq and the S&P 500 index experiencing four consecutive weekly declines. Among them, the S&P recorded its largest decline since April of last year.

The sector performance showed a mix of gains and losses. According to Dow Jones market statistics, the energy sector fell by 12%, technology by 6.9%, and industry by 2.8%. Utilities, materials, and healthcare sectors also saw declines. Select consumer goods rose by 2.7%, communication services by 2.3%, real estate by 1.9%, and financials as well as daily consumer goods sectors also saw increases.

As concerns over the excessive spending scale of AI company continue to intensify, the NASDAQ index plummeted by more than 5% on Thursday, reflecting market fears that the growing resistance to AI among Democrats and across the United States will lead to a slowdown in data center construction. Cohen Hurelbeck, an investment and options strategist at Danske Bank in Denmark, stated in a report that a Congress controlled by Democrats may impose stricter scrutiny on spending on technology and artificial intelligence.

Bearish sentiment towards AI transactions had been on the rise before the election. The NASDAQ index recorded its worst monthly performance since March 2025 in October, with chip manufacturers and emerging cloud service providers leading the declines.

The current mainstream consensus on Wall Street regarding next week's U.S. stocks is that there will be high volatility, with key data determining the direction. In the short term, the battle between bulls and bears will be intense, with the core disagreement focusing on the impact of AI regulation and the rebound from position repairs. The U.S. Consumer Price Index for October ( CPI ) to be released on Tuesday local time is the biggest variable; if inflation rebounds beyond expectations, the probability of the Federal Reserve raising interest rates in December will further increase. After the Democratic Party's big win, concerns about a slowdown in AI data center construction have not been fully resolved, and pressure on tech stocks may recur.

JPMorgan holds a tactically bullish stance, believing that after hedge funds deleveraged in October and the concentrated liquidation of AI positions, the market environment has become more favorable. They recommend a dumbbell allocation strategy that combines technology stocks with cyclical stocks, betting on a general market rally following the completion of the elections, based on historical data.

HSBC believes that the real catalyst for the market is the initial public offering (IPO) of Anthropic. Once this transaction is successfully completed, the market will fully return to tech stocks, and at the same time, non-core assets that surged in October will be cleared out.

Castle Securities expects that the direction with the least resistance for the U.S. stock market at the end of the year is upward. Systematic fund positions have dropped to their lowest level since March, and coupled with retail investors making net purchases of nearly $33 billion over 22 consecutive trading days, there is sufficient capital to drive a recovery in the future.