Goldman Sachs: Pre-election hedge unwinding fuels market rebound, declining political uncertainty compresses market risk premiums.

Following the release of U.S. midterm election results, the Democratic Party retook control of both chambers of Congress, but U.S. stocks rebounded quickly after a brief dip. Nasdaq 100 futures fell as much as 2.4% on election night, then turned to gain 0.9%, bouncing roughly 929 points from their intraday low; S&P 500 futures rose around 1%, while Dow futures climbed about 700 points. Analysts from Goldman Sachs and Deutsche Bank attributed the rally mainly to the unwinding of hedging positions built up ahead of the election once results became clear, while falling political uncertainty also compressed market risk premiums. Goldman Sachs noted that the AI infrastructure sector had already seen significant valuation compression, and a drop in short-term volatility could further support equities. Still, market concerns over AI investment persist. Texas Governor-elect Gina Hinojosa stated that construction permits for data centers will not be unfrozen until a more comprehensive regulatory framework is in place, which could delay several gigawatts of planned computing capacity originally set to launch in 2027 to 2028. Deutsche Bank, meanwhile, views the U.S. debt ceiling issue, which could come to a head in the second quarter of next year, as a key policy risk. Whether the Republican Party can reach a debt ceiling adjustment deal before the new Congress takes office in January will impact subsequent fiscal policy uncertainty. Analysts argue that the current rally largely reflects position adjustments and risk premium compression, with data center construction permits, AI infrastructure investment, and debt ceiling negotiations being the key tests the market will face going forward.