How will US stocks move after the midterm elections? Wolfe warns of a "wall of worry" about AI, while Morgan Stanley says the correction is nearing its end.

According to reports from Wolfe Research on Monday, traders expecting the U.S. midterm elections to clear out all bearish factors in the stock market might now be facing a “wall of worry” brought on by artificial intelligence (AI), which is preventing the market from moving higher. On the same day, Mike Wilson, Chief U.S. Equity Strategist at Morgan Stanley, stated that the stock market correction that began a few months ago is in its final stage, and investors should use this opportunity to adjust their risk exposure.

The Wolfe strategist team, led by Chris Senyek, wrote in their report that investors are now paying closer attention to AI infrastructure, and trading around this technology has become driven by tangible performance, even though the midterm elections may still be the biggest catalyst for the U.S. stock market this week. Senyek noted that AI trades are “now subject to technical trading factors, including signs of shake-outs as investors lock in annual profits.”

Last week, the Nasdaq 100 Index fell about 2%, dragged down by disappointing earnings from Alphabet (GOOGL.US) and Amazon (AMZN.US). On Monday, the index continued its decline. Senyek expects that as traders assess the mixed results from the hyperscale cloud providers, U.S. equities will remain range-bound. He stated that NVIDIA's (NVDA.US) earnings report on November 17 will be “crucial” for AI trades to “regain favor.”

Senyek stated that the stock market is “still being blocked by a well-known ‘wall of worry’,” adding that the latest hyperscale cloud provider developments aren’t entirely negative. He highlighted that Anthropic PBC’s filing of the S-1, Microsoft’s (MSFT.US) solid performance, and positive signals from Oracle’s (ORCL.US) Analyst Day have all been overshadowed by the news from Alphabet and Amazon. Senyek indicated that operational missteps at hyperscale cloud companies may continue to exert pressure in the short term.

Senyek pointed out that whether former U.S. President Donald Trump increases pressure on Iran following the midterm elections—and the resulting impact on oil prices—remains “the biggest macro variable in the future.”

According to data compiled by Morgan Stanley, since 1950, the U.S. stock market has risen in the 6 months and 12 months following every midterm election. Senyek expects that as long as oil prices remain stable and NVIDIA’s earnings report and Anthropic’s upcoming IPO “prove to be positive catalysts,” the market will rise after the midterms through the end of the year. He also noted that over the past 30 years, U.S. stocks have historically tended to rise starting in November; this year, however, it depends on “how long last week’s AI trading ‘hangover’ lasts.”

As Wolfe Research issues a word of caution, Wall Street strategists are trying to forecast the direction of the U.S. stock market after the midterms. On Monday, Mike Wilson, Chief U.S. Equity Strategist at Morgan Stanley, commented that the correction that began months ago is in its last stage and investors should use this opportunity to manage risk allocation.