BofA Warned About This Exact Election Night in August
A Bank of America strategist sketched out a scenario months ago that markets hoped would never arrive, and now that it has, futures are moving in exactly the direction he feared, with the full damage still unknown.
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Democrats have won both the House and the Senate, plus Texas Gov. Greg Abbott conceded to Democrat Gina Hinojosa. Both results match parts of a setup Bank of America strategist Michael Hartnett described in August and October.
S&P 500 futures were down 1.2% at 10:37 p.m. ET, and Nasdaq-100 futures were down 2%. In regular trading, the S&P 500 had closed up 0.36% at 7,568.92.
The SPDR S&P 500 ETF Trust (NYSEARCA:SPY) ended the regular session up 0.31% at $754.44. All of the selling has come in after-hours trading and futures.
Michael Hartnett warned of a slump of more than 10% if Democrats swept Congress. Futures have priced in only a small part of that, so the 9:30 a.m. ET open on November 4 will likely give a better read on how much of his case traders expect.
Checking Hartnett’s Conditions One by One
On August 14, Hartnett called the Texas race a “referendum on affordability versus AI data centers.” Michael Hartnett said that if Democrats took the Senate and defeated Abbott, stocks faced a “big slump” of more than 10%. If Republicans held both, he expected stocks to “rip into bubbly 2027.”
His October note changed the trigger to a win in both houses. He called it “an electoral shift from populist capitalism to populist socialism.”
The Texas and House conditions are now met. Democrats have also won the Senate.
The dollar index fell 0.32% to 101.39 by 9:31 p.m. ET. The 10-year Treasury yield fell to about 4.90%, and the two-year yield was near 4.55%, as the prospect of a standstill in Congress weighed on both.
Lower yields reduce the rate investors use to value future profits. That can limit SPY losses even if AI momentum fades.
Why Texas Matters for AI Megacaps
Wells Fargo estimates 27% of U.S. data center gigawatts sit in Texas. On October 15, Hinojosa said, “When I am governor, I will issue a moratorium on any new data centers.” The moratorium risk existed before her win, because Abbott himself halted data-center permitting in September.
As of March 17, SPY’s largest holdings were NVIDIA (NASDAQ:NVDA | NVDA Price Prediction) at 7.58%, Apple (NASDAQ:AAPL) at 6.66% and Microsoft (NASDAQ:MSFT) at 4.91%. That concentration helps explain why Nasdaq-100 futures fell further than S&P 500 futures.
Counterweights Hartnett Leaves Out
JPMorgan expected a win to pull the S&P 500 down about 0.5% on November 4 alone. JPMorgan traders saw a gain of up to 1% if Republicans keep the Senate.
Julian Emanuel of Evercore ISI expects a year-end level of 7,650 only if a win comes with a disputed election. Emanuel’s base case is 7,750.
President Trump has also limited what a Democratic Congress can pass: “you call it gridlock, what happens is I veto everything.” State Street’s Michael Arone said, “I don’t think the big risk to markets is from the blue wave; it’s investors overreacting to a blue wave.”
Signals That Could Decide SPY’s Next Move
The futures decline looks modest so far against Hartnett’s case. A drop the size Hartnett described, measured from the November 3 close, would put the S&P 500 near 6,812, and a 1.2% decline in futures is far from that.
Gridlock under a presidential veto and falling yields limit the policy damage. However, SPY’s heavy weighting in AI megacaps is exactly the exposure a Texas moratorium threatens. The Invesco S&P 500 Equal Weight ETF (NYSEARCA:RSP) holds the same companies in equal amounts, which lowers its exposure to that concentration.
Hartnett’s case gets stronger if the megacaps cut their AI spending guidance on top of these results. It weakens if the SPY climbs back above $754.44 after the November 4 open.
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Omor Ibne Ehsan is a writer at 24/7 Wall St. He is a self-taught investor with a focus on growth, cyclical, and dividend equities that have strong fundamentals, value, and long-term potential. He also has an interest in high-risk, high-reward investments such as penny stocks.
