AI spending fears threaten S&P 500 recovery

The S&P 500 (US500) has started to recover after last week’s sharp fall, but concerns about artificial intelligence (AI) spending and interest rates remain. The US midterm elections have raised questions about whether new data centers will face tougher rules, while strong jobs figures have kept another Federal Reserve (Fed) rate hike in December under discussion.

The index fell 4.4% on 5 November before rising 0.3% the following day. Futures were also higher on Monday morning. The selling had spread beyond technology, with JPMorgan Chase and Caterpillar among the companies that fell. That suggests investors were becoming more cautious across the market, rather than reacting to problems at a few technology businesses.

Building AI data centers could become harder

Democrats will control both chambers of Congress from January. Investors initially welcomed the prospect of fewer major policy changes. Attention has since turned to whether greater opposition to data-center projects, particularly from state and local governments, could slow construction.

These facilities house the computers that run AI services and need large amounts of electricity. Concerns about power supplies and household bills could lead to tougher approval rules or higher costs. If projects take longer or become more expensive, the impact can reach chipmakers, equipment suppliers and companies hoping to earn money from AI.

The concern is about what might change, rather than evidence that new rules have already stopped investment. It also does not mean demand for AI has disappeared. Investors are questioning whether companies can build the facilities they need at a cost that still allows them to make money.

Strong hiring keeps rate hike fears alive

The bond market has also changed direction. Investors bought US government bonds during Thursday’s stock selloff, pushing their yields lower. But yields rose again after Friday’s jobs report, showing that concerns about higher interest rates had not gone away.

US employers added 165,000 jobs in October, while unemployment was 4.1%. Continued hiring can support household spending and company sales. However, if prices keep rising too quickly, a healthy jobs market may give the Fed more room to raise borrowing costs again. The central bank held rates at 3.75%–4.00% in October, with two policymakers preferring an increase.