by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with a discussion of rising risks to data centers following the elections. We then turn to monetary policy, examining how the Federal Reserve may be insulated from potential changes to its Board of Governors. Next, we briefly cover a possible White House shake-up, the Paraguayan president’s resignation, and delays to a data center project in New Mexico. As always, we conclude with a review of recent domestic and international economic data.

Data Center Fears: Equity markets slid Thursday as anxiety grew that congressional changes could slow data center expansion. The S&P 500 experienced a sharp selloff with investors pulling back from the AI trade amid potential buildout disruptions. Paired with mounting worries about smaller cloud providers overextending on infrastructure debt, the pullback highlights rising skepticism over the sustainability of the AI rally.

• Political and regulatory uncertainty is casting a shadow over the AI infrastructure boom. Fears of structural construction delays, fueled in part by campaign proposals from several Democratic candidates to impose moratoriums on new builds, have led investors to push back expected operational timelines. In response to these rising risks, Microsoft has reportedly tightened oversight of projects managed by neocloud partners and is actively paring back involvement in higher risk developments.
• These infrastructure headwinds spilled into broader equity markets Thursday, amplifying jitters across the technology sector. The selloff intensified as Qualcomm joined the growing list of chipmakers offering cautious outlooks. Although Qualcomm beat fiscal fourth-quarter earnings and revenue expectations, its first-quarter EPS guidance fell below the midpoint of analysts’ estimates. The company’s share drop mirrors recent declines following Intel’s weak results, even as AMD offered a rare bright spot with a post-earnings rally.
• Political headwinds are compounding concerns that the AI rally is running out of steam. Pullbacks across the “Magnificent 7” highlight growing AI fatigue as investors become hesitant to pay steep valuation premiums. Notably, Nvidia’s price-to-earnings ratio has dropped to pre-pandemic lows. While the company’s core earnings remain solid, the contracting multiple reflects market expectations that hyper-growth will normalize over the next few years.
• Nvidia’s upcoming earnings report and Anthropic’s expected IPO will serve as crucial tests of AI sentiment. A strong earnings outlook from Nvidia could alleviate fears of a slowdown in infrastructure spending, while a successful public debut for Anthropic would reinforce investor confidence in AI as a long-term transformative technology. If both events deliver positive results, broader market sentiment could recover heading into year-end; conversely, any major disappointment risks exacerbating downside pressure this quarter.

Fed Safe? The midterm elections have reshaped the narrative around Federal Reserve independence. Once the new Senate is seated, the White House will no longer be able to count on confirmation for whomever it nominates to vacant seats on the Federal Reserve Board. This has eased fears that the administration might pack the Fed with loyalists — a prospect that had fueled worries the central bank would turn overly dovish. Although recent changes in Fed operations still point to a dovish tilt, the shift in the Senate suggests tighter monetary policy remains on the table.

• The chamber’s new composition will complicate any attempt to replace Fed Governors Lisa Cook and Jerome Powell — and, to a lesser extent, Michael Barr — with appointees more closely aligned with the administration. Even if the White House establishes legal grounds to remove them, their replacements would still require Senate confirmation, giving the Democratic majority an opportunity to block nominees perceived as too closely tied to the White House.
• Trump has long argued that the president should have a greater say in monetary policy and has repeatedly pressed the Federal Reserve to lower interest rates. Following September’s rate hike, he continued to target the central bank’s other policymakers rather than Chair Kevin Warsh, describing Warsh’s colleagues as “hostile” and “political.” His frustration underscores his broader push for greater influence over the central bank.
• The White House may face greater constraints on reshaping the Federal Reserve Board, but Warsh’s changes to the policy calendar could create a more dovish tilt. At the latest Fed meeting, Warsh announced plans to reduce the number of scheduled rate-setting meetings from eight to seven in 2027 and then to six the following year. Although the Fed can adjust rates between scheduled meetings, such moves would likely come in response to an emergency — circumstances that have typically favored rate cuts.
• Stronger constraints on White House influence over the central bank should bolster investor confidence in US Treasurys. The incoming Senate majority should restrict the White House’s ability to install allies on the Board, keeping rate hikes on the table. However, planned changes to the Fed’s schedule could act as a counterweight by reducing the number of meetings available to tighten policy.

White House Shake Up: Following the Republicans’ midterm defeat, the White House could face several high-profile departures. Secretary of State and acting national security adviser Marco Rubio is reportedly weighing an exit as he considers a 2028 presidential bid. Defense Secretary Pete Hegseth could also resign ahead of potential impeachment proceedings, which are rumored to have bipartisan support. Moving quickly to replace either official would allow Republicans to confirm successors before the next Congress takes office.

Paraguay Controversy: Paraguayan President Santiago Peña has resigned amid scrutiny of his ties to a failed commercial bank. He had already faced the threat of impeachment after the bank’s collapse left many Paraguayans unable to access their savings. His departure is a setback for US efforts to expand its influence in South America, as he had been an ally of the White House.

Oracle Data Centers: An Oracle-backed data center project in New Mexico faces further delays as its developer seeks the air-quality permit needed to expand on-site power generation. The facility’s use of natural gas requires state approval because of its emissions, complicating the construction timeline. Such delays could heighten investor concerns about some developers’ ability to repay their debt.

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