3 Policy Catalysts to Watch This Fall

Summary

Ariana Salvatore discusses three fall policy catalysts: midterm elections and data-center pushback, a September US-China summit, and fiscal deadlines. She remains constructive on AI/hyperscaler capex despite local political backlash, while noting equity markets face historical midterm weakness. The team views most election-driven market reactions as likely temporary, with secular AI buildout trends persisting.

• Midterm elections are the most consequential catalyst, with data center opposition now a granular race-by-race issue.
• Data center backlash cuts across party lines, with governors' races in Texas, Pennsylvania, and Ohio especially important.
• Morgan Stanley remains constructive on AI capex, forecasting over $1 trillion hyperscaler spending next year.
• AI sovereignty and company mitigation measures support continued data center buildout despite local backlash.
• The September 24 US-China summit likely aims to maintain managed stability, with potential tactical escalation.
• Fiscal deadlines and the NDAA could reemerge as government shutdown risk in December.
• Equity markets typically face negative seasonality into midterms; any Democratic-outperformance knee-jerk is expected not to be durable.