NEW YORK, Oct 30 (Reuters) - US midterm elections, a heavy slate of corporate earnings and the monthly jobs report will further test stock investors next week, after a series of setbacks for the market-leading AI trade.
The latest AI turbulence stemmed from the quarterly results of Alphabet (GOOGL.O), one of the hyperscalers spending massively on data centers. The company's cash burn and disappointing revenue led shares of the Google parent to tumble more than 12% on Thursday, dragging on major equity indexes.
Alphabet's report marked the latest concerns about financing needed to support the AI investment theme at the heart of the US bull stock market -- questions likely to persist in the coming days. Apple (AAPL.O), AMD (AMD.O), and Palantir (PLTR.O), are among the major tech and AI players due to report next week, while the midterms could determine the outlook for AI regulation.
The stock market "seems a bit troubled to me, and I think that really stems from the AI fears that seem to be persistent, if not building," said Marta Norton, chief investment strategist at retirement and wealth services provider Empower. "There is still some digestion around what we saw with earnings this week."
MIDTERM VOTE COULD AFFECT AI
Tuesday's elections will determine whether Democrats can wrest control of Congress away from President Donald Trump's Republican party. Democrats are widely predicted to win the House of Representatives, but the Senate is more in doubt. Republicans controlled both chambers of Congress during the first two years of the Trump administration.
Investors are bracing for increasing pushback on data centers, whose impact on energy costs and the environment has led to intense public opposition. Despite doubts that any viable legislation will pose serious risks to AI investment, regardless of which party wins, a Democratic sweep is expected to bring more scrutiny. Investors are also watching local and state races in Texas and elsewhere on Tuesday for their implications for the data-center buildout.
"To the extent that the Democrats really do have a significant blue wave, I think that will be seen as negative for both the AI names, for tech to some extent in general, and maybe even for the market as a whole," said Rick Meckler, partner at Cherry Lane Investments.
Defense and healthcare are other stock market sectors that could be sensitive to the election results. Any shift in Washington could affect the outlook for fiscal spending that could reverberate through asset prices. A Democratic sweep could bring more regulatory scrutiny, including for Wall Street banks and crypto firms.
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Robust earnings performance has underpinned equity gains so far in 2026. With about half of the S&P 500 having reported third-quarter results, overall earnings were on pace to rise 31% for the period, according to LSEG IBES data on Thursday.
Investors were punishing some reports. Along with Alphabet, Caterpillar shares (CAT.N), sank 9% on Thursday after the company stuck to its annual sales growth forecast despite strong demand for its power equipment from data centers.
"The earnings bar is very high," said Chris Galipeau, head market strategist at the Franklin Templeton Institute. "And if you miss or don't jump over that bar, you're in trouble."
Apple reports on Monday, with the iPhone maker's shares up 28% so far this year. Results are also expected from semiconductor companies AMD and Qualcomm (QCOM.O), as well as Palantir, which offers another view of the AI trade. McDonald's (MCD.N), Amgen (AMGN.O), and ConocoPhillips (COP.N), are among over 100 S&P 500 companies that are due to report next week.
Next Friday's employment report for October will give a critical read into the health of the US economy.
Data on Thursday showed the US economy in the third quarter grew at its fastest pace in a year, as consumers maintained robust spending and businesses doubled down on investment in AI. The Federal Reserve this week upgraded its assessment of the economy as it held interest rates steady.
"I think the missing piece of this strong economic growth narrative is the lack of job growth," said Matthew Miskin, co-chief investment strategist at Manulife John Hancock Investments.
As AI and related technology stocks have struggled, other areas of the market have picked up the slack. As October winds down, the energy and financial sectors were set for solid monthly gains, as were defensive groups such as utilities and healthcare. The S&P 500 (.SPX), was last up about 1% for October and over 12% on the year.
"The market is much more broad than people generally want to give it credit for," Galipeau said.
Reporting by Lewis Krauskopf; Editing by David Gregorio
