Please see the below article from Tatton Investment Management discussing market volatility following the US midterm elections, October’s asset returns and why concerns over an AI bubble may be overstated, received this morning – 09/11/2026.
Sentiment rollercoaster
Thursday saw a rout in global tech stocks, on fears that Democrat victories in the US midterm elections will slow datacentre building. Indeed, US equities had their worst day since 2025’s “Liberation Day” but then recovered somewhat on Friday – helped by a stronger-than-expected US employment report. Investors are clearly anxious about the durability of AI growth, but we think the ‘AI bubble bursting imminently’ narrative is overdone.
Markets were initially positive on the midterms. Stock and bond prices gained, while oil dropped below $100pb for the first time since September. Markets were relieved that Trump didn’t challenge the results – having been more nervous about election chicanery than we realised. A ‘lame duck’ president is less able to disrupt markets, but there are still risks. Lame ducks tend to focus on foreign policy, which doesn’t bode well for the oil crisis, and an opposition Congress makes government shutdowns more likely.
Panic then spread over Democratic governors elected on anti-datacentre platforms in Texas, Georgia and Ohio. But a datacentre slowdown might not actually be all that bad for AI firms. It’s arguably what investors want: they have punished debt-fuelled spending plan announcements recently and rewarded near-term cashflow. A moratorium on new approvals would leave existing projects intact but make ‘compute’ scarcer and reduce the building costs – which would be supportive for hyperscalers’ bottom lines, but likely slow US growth.
The Bank of England raised interest rates by 0.25 percentage points and signalled more hikes ahead. Governor Bailey made it clear that global factors are dictating policy – even though those global factors (lower oil prices and US bond yields) have helped gilts recently. The fact French yields fell despite another budget failure in parliament shows that it’s often global sentiment, rather than local factors, that drives bond markets. The crucial factor is a lower risk that the AI infrastructure splurge overheats the global economy – a relief, we think, once volatility subsides.
October asset returns review
October brought a setback for equity investors, but relief for bondholders: global stocks shed 2.5% in sterling terms, while global bonds gained 1.7%. Investors finally changed their minds about the relative attractiveness of historically high government bond yields versus stocks. The strange part is that it happened despite strengthening corporate earnings and a decisive moderation in yields.
Yields had been rising since March, and we wondered when ‘risk free’ returns would be attractive enough to lure investors. The turning point came in mid-October, when a surprisingly strong US inflation report convinced bond investors that growth would tail off as the Federal Reserve was forced to raise rates. Gilt yields also fell ahead of an autumn budget that contained little new spending or revenue raising.
Investors were also moved by doubts over whether the boom in AI earnings growth can carry on. Stories about slowing demand for AI computing power spooked markets, even though other indicators show the opposite, alongside fears of debt-financed AI spending and a spike in tech credit default swaps (CDS). Higher CDS raises borrowing costs and makes tech valuations less attractive. US tech stocks lost 6.1%, Japanese shares fell 5% and emerging markets (concentrated on a handful of East Asian chipmakers) dropped 8.8%. China dropped 7.5%, though that was also about weak domestic growth.
Tech-lite equity regions fared better: European stocks fell just 1% and the UK even gained 1.3%, helped by the FTSE 100’s energy exposure. Oil prices rose 14.7% on expectations of a post-midterm US attack on Iran.
The timing of AI anxiety seemed somewhat irrational, considering the continued strength of tech earnings. We got the sense that investors were waiting until the US midterm results – and how Trump might react to them – before making any firm decisions. When Trump quickly accepted defeat at the start of November, global stocks, initially, rebounded.
Dispelling the doom
We’re increasingly fielding inquiries from clients nervous about apparently impending global disaster or collapsing share prices. Scare stories abound about global conflict, hacked supermarket fridges and a supposed ‘AI bubble waiting to burst’. We should treat these stories separately.
Downing Street’s advice to stock up on food and water was never going to calm the nerves, but it doesn’t mean war is imminent for the UK. Advanced AI models make national infrastructure attacks a greater threat, but the same frontier models that are exposing security gaps are also plugging them. AI supercharges the cybersecurity race, but doesn’t necessarily favour one side in the long-term.
Meanwhile, fears of a post-midterm election attack by the US on Iran eased this week – though Trump retains foreign policy control even after losing the majority in Congress.
Geopolitics are often the cause of investors’ concerns, but the object of them is often tech share prices. AI stocks sold off on Thursday, following Democrat victories on anti-datacentre platforms in the US midterms.
It is also worth noting that AI isn’t a bubble in the classic valuation sense at least: valuations in terms of share prices relative to corporate profits have actually fallen as earnings growth has outpaced share prices. Moreover, the proposed datacentre moratorium cuts against the previous AI earnings anxiety of (supposedly) slowing demand for ‘compute’. GPU rental prices show an undersupply in compute, and paused datacentre building would only prolong the undersupply and keep prices elevated. It would be brave to bet against AI earnings growth in that environment.
We think the fears about tech firms’ negative cashflows are also overdone. AI firms are borrowing to fund investment, as companies do, and the big names still have far less debt than most. We’re not underplaying the concerns around opaque financing agreements, but we also suspect that debt-fuelled spending will slow – precisely because investors are punishing firms for capital raising. Market collapses usually happen when undue optimism quickly reverses but, right now, there’s not enough optimism to undo.
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Marcus Blenkinsop
9th November 2026