Stocks Edge Higher Post-Midterms as JPMorgan Flags Tech Rebound and Broader Rally

Market move and the playbook

Stocks recovered from a weak open Wednesday as investors worked through the midterm outcome. The tech heavy Nasdaq 100 climbed 1.8%.

JPMorgan's US Market Intelligence team kept a near term positive stance, pointing to well worn post election tendencies. Citing JPMorgan's Craig Cohen, they noted the S&P 500 has risen in the year after every midterm since 1950, averaging about 15%. Their stats also show average gains of 5.4% over three months, 11.4% over six, and 12.5% over nine following midterms.

Tech setup and the AI checklist

JPMorgan's trading desk expects technology shares to rebound and the rally to broaden beyond a small cluster of massive caps. Andrew Tyler's team wrote, "We would not abandon the Tech trade and would play for a tactical rebound," and said they prefer a barbell that mixes tech with cyclical stocks, with a heavier lean to cyclicals.

Policy watch: Texas data centers and Iran risk

Investors are gaming out what Democratic control of Congress could mean for tech, especially AI infrastructure budgets. Overnight jitters stemmed from Texas Governor elect Gina Hinojosa advocating that new data center construction be paused immediately until further regulations are established. JPMorgan's desk argued the Texas risk may be smaller than feared, pointing to other states that can host facilities and noting that new regulations would not fully halt construction.

Beyond tech, investors are watching to see if Democrats attempt to compel a conclusion to the conflict with Iran. When the new Congress convenes in January, lawmakers could seek to withdraw funding or move to recall troops if hostilities extend past 90 days absent sign-off from Congress. The bank said markets appear to be increasingly pricing the possibility of a deal. Separately, Barclays said Wednesday morning the election result is unlikely to set the stage for equities to keep advancing for the remainder of the year.

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Sector map and why it matters

JPMorgan expects the advance to fan out across groups, seeing smaller potential gains for energy and a reduced risk of declines for tech. Among cyclicals - companies that move with the economy - they prefer consumer and financial stocks, particularly if the yield curve keeps steepening, meaning long term rates rise faster than short term ones.

The bottom line: a tactically bullish setup with an eye on policy. If the rally broadens as JPMorgan expects, leadership could rotate toward cyclicals while tech attempts a rebound.

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