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Drew Pettit, Chief Investment Strategist at Roundhill Investments, says legislative barriers and strong corporate earnings make a fundamental unwinding of the AI trade unlikely despite political concerns.
✦ AI SUMMARY 30-second read
- Pettit argues Democrats lack the two-thirds majority in both houses needed to push through major AI regulation.
- Data centre opposition is bipartisan, with moratoriums already in place in Republican-controlled Texas.
- Historical US market trends show rallies in the months following each of the last 19 midterm elections since World War II.
Why it matters: India's AI-linked technology sector and global institutional investors track US regulatory signals closely when making capital allocation decisions.
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Global markets appear to be overreacting to fears of tightened artificial intelligence regulation following a strong Democratic showing in the US elections, according to Drew Pettit, Chief Investment Strategist at Roundhill Investments.
Pettit contends that corporate earnings and business fundamentals, rather than political outcomes, will continue to be the primary drivers for stocks, and that the likelihood of sweeping policy change remains low.
What was said
Despite the Democratic performance exceeding polling expectations, Pettit pointed out that the party does not hold the two-thirds majority in both houses of Congress required to advance major legislative changes, particularly given that Donald Trump has indicated he will veto new bills.
"At the end of the day, Trump keeps saying he's going to be the veto man in the White House, and he probably will," Pettit said. He added that markets appear to be pricing in the possibility of a Democratic president after Trump, which he described as getting ahead of developments.
On earnings, Pettit was direct: "I've never made money trading politics. I make money by trading fundamentals and what businesses do."
Background
Opposition to data centre expansion is not a purely partisan matter. Both Republicans and Democrats have raised concerns about the pace of development, and moratoriums on new data centres have already been implemented in Texas, a state whose governorship is Republican-controlled.
Pettit argued that a full reversal of the AI trade on the basis of election results alone would require a complete sweep across Congress, the Senate and the White House — an outcome the current political arithmetic does not support.
Voters, he noted, remain focused on immediate issues such as inflation, affordability and the war in Iran, concerns that do not shift overnight with a change in congressional composition.
What it means for markets
Pettit referenced historical US market behaviour, noting that rallies have occurred in the months following each of the last 19 midterm elections since World War II, suggesting the post-election period could serve as a positive catalyst for stocks.
He stressed that as long as underlying business resilience and earnings revisions remain strong, the passing of the midterm elections should support equity performance rather than undermine it.