Midterm Market Rally, AI Data Center Risks and Iran War Fallout 11/4/26

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1:06Thank you very much, Scott. Stocks are soaring as mega-cap tech names jump on the Democrats' decisive win. I'm Kelly Evans, and welcome to The Exchange. The Dow is up 1 ,500 points today for its best day since April. The S &P up 1.9%, about 2.2 % for the NASDAQ. Amazon, Apple and Microsoft are all jumping 6 % or more. 7 for Amazon now. That's all boosting the Dow. If you're wondering why we're at 1500, 3M's helping too. Microsoft, fresh all-time high, back above a 4 trillion market cap. Why? The blue wave could slow down CapEx and data center spending plans. Markets see that as a positive for these names.

1:43Apple's back above 5 trillion. Elsewhere, healthcare, banks, housing, clean energy all jumping. The Invesco solar ETF up 6 % for its best day since last August. And the home builders, the ITB, on track for its best day in nearly three years. On the flip side, taking a hit today is the Musk empire. SpaceX and Tesla are lower. SpaceX about 5%, less than 2 % for Tesla now. Musk's$224 million support for the Republican and Texas governor's race didn't pan out, although some see it as a long-term win for SpaceX, and we'll discuss that in a bit. But let's begin with the latest on the midterm results and reaction from both parties, which has been coming in all day long.

2:21Megan Costella is in Washington with the latest. Megan. Kelly, I want to start with what's happening right now at the White House. President Trump just called reporters for an unplanned event. And I think we can take a live look in at it that what he was calling them to was the ballroom construction. We just heard from President Trump on camera for the first time since results started rolling in. He spoke for just about 15 minutes, ending just a minute or two ago, and did not once mention the midterms. Now Interior Secretary Doug Burgum is speaking. We'll see if the president takes some questions, but it just gives you a little flavor of what's going on at the White House today, where they are not, at least so far, discussing the midterms.

2:57But now taking a shift to last night. This was a once-in-a-generation realignment in Congress. The polls, by and large, underestimated the Democrats, and the party is now looking at comfortable margins in both chambers next year. At least 54 seats in the Senate, with two close races left uncalled, and at least 250 seats in the House. So now the question is what Democrats will do with control. I spoke with likely next House Speaker Hakeem Jeffries here in our D.C. Bureau this morning. I asked him specifically if Democrats who will be focused on oversight will make private companies a target next year.

3:32He said those conversations are ongoing, but clearly things aren't going right for the American people. He added capitalism is broken in the way in which it is being experienced by so many working class Americans and middle class Americans. So, Kelly, a strong message there on what Democrats see in last night's results, that capitalism, he says, is broken. Now, for the GOP, besides the president's impromptu press conference, Vice President J.D. Vance is blaming the losses on one thing, the Iran war. He wrote on social media, if you'd like to argue it was worth it, that losing the Senate for the next six years was worth it, then do so.

4:08But everyone knows why we lost. So a pretty significant break there with the president, who last night was acknowledging the role that gas prices played in these elections, Kelly, but also said the losses were due to unpopular GOP candidates and to what he described as a mood in the air. Anything still up in the air, Megan, in terms of the results that's going to have a big impact on the final outcome? A little bit. We're still waiting to see exactly what the final margin is in the House. already were at levels that we haven't seen for either party since about 2008. But as Democrats gain more seats, it could be something we haven't seen since around the early 90s, if not before that.

4:44In the Senate, two key races are left uncalled that really could go either way here. In Alaska, around 1 ,000 votes separated the Democrat and the Republican, last time I checked on that one. And in Mississippi, a big surprise here for how close it was. This morning, only 43 votes separated the Democrat and the Republican. So both very close here. It could be quite a while until we know who wins those, but we already know the margins. It's just a matter of just how many seats each party ends up with. All right, Megan. Thank you, Megan Casella. Our next guest says the Trump coalition has imploded, which has big ramifications for 2028 and beyond.

5:17And the Iran war shifts back to the front burner for markets. Let's bring in James Lucere. He's managing director at Capital Alpha Partners. Maybe let's start with the Iran war, where what's your latest thinking on the chance now of further escalation? Because you see oil prices today, you know, they're falling. Gasoline futures are falling. I think there is this sense amongst many that strikes are a lot less likely now. Well, Kelly, war and Thanksgiving very seldom go together. But if President Trump wants to get his defense funding through Congress, he probably needs to complete the war before the second half of lame duck begins after Thanksgiving.

5:58So it's kind of a use it or lose it situation. The markets have been going up or down. The markets last week were at their highest point since April in the anticipation of an imminent strike. Obviously, the Trump administration put Gulf allies on warning that there would be an intense week-long campaign similar to Epic Fury. Now all bets are off, but with Trump, you never know. It could be that the level of defeat he has suffered in the midterm means that he's backing off, or it could mean that he lashes out again. So we'll just have to see. Exactly the same take I've heard from others, which is that while, you know, on paper, this would seem to make strikes less likely.

6:35The president sometimes likes to shift the tone and take people by surprise and reframe it. And that could implicate something. But markets are clearly moving away from that possibility. What are you now pricing in as you look towards 2028 and beyond, James? Well, it's really all about the 2028 presidential cycle now. I think Democrats are actually going to pass very little legislation following in the model of George Mitchell in 1992 after those midterms effectively truncated the effective presidency of George H.W. Bush. There'll be a lot of investigations. There will be messaging bills, but probably not any real hope of something passing until 2028.

7:12The key point is that if Democrats win a majority in the House and Senate in this cycle. They will likely keep it through 2028. The majorities almost never flip in back-to-back election cycles. So what this means is that Democrats have a leg up for 2028. They have two legs of the trifecta already. If you have a Democratic president in 2028, then there's a tremendous amount of taxation that can happen. Corporate taxes, individual taxes, social security, energy-related taxes. It's all going to be on the table in 2029. And the next two years are really something of a warm-up for that. What do you make of the market reaction today, especially in tech stocks?

7:55Well, you know, the market likes an outcome. I mean, there's such a thing as a relief rally. Once you see that, you know, the uncertainty is over, the markets generally rise after the election. The question is how long they decide that that rise should continue. But generally speaking, markets usually rise after an election because at least one of the available paths forward becomes clear. You don't have to discount two or three different possibilities. Identifying the rationale for the loss is important in trying to figure out the response that might follow. In other words, tariffs. Okay, we'll come back to that.

8:32So you're saying tariffs. The vice president is saying the Iran war. There's a topic on your list that I hear about a lot, but has not directly come up yet, which is corruption. We've heard about it from some other people, both in the Republican Party, certainly on the Democratic side. And the reason why I bring this up is that as the postmortems continue, being able to correctly determine what the issue was will help those in the markets understand what may or may not happen with the Iran war tariffs and other issues now. Yeah, that is important. You do need to understand what went wrong in order to make corrections for the future.

9:11But the appearance of arbitrary government, insider dealings, crony capitalism has always been there to some extent in the background, but it has really come on in polls. I would point out to a poll done by another network as well as a poll done by a major New York City newspaper, both of which point to corruption as the number one concern by voters. And that's also coming up in the exit polling, too. So I believe this election was driven largely by economic concerns, trade disruptions, terrible conditions for the farm states. I think that the president might have been able to get through higher gasoline prices, but it's really the diesel prices that kill him.

9:55But if you've got to reach out to those independent voters, the swing voters, the basic Republicans in Kansas or Texas who want to know whether or not they should turn out to vote today, that corruption issue is really, really something that tips the scale against voting for the president. Do you think this was a referendum on AI and do you expect it to slow the build out of data centers and slow CapEx and kind of slow what's happening in that part of the economy? Not really. I mean, I think among among wonderful people who watch CNBC, AI and the AI build out and the AI infrastructure is the top of mind story.

10:31But if you look at all the polling in the elections here, only about one percent of people in multiple polls issued or volunteered AI and data centers as their main concern. It was more of a contributing concern. There were particular states like Ohio and Texas where data centers were a main issue. I think that given divided government in Washington and divided government in Texas and Ohio. Sorry to jump in. The president is addressing the midterm results, let's listen to it. You can't let Iran have a nuclear weapon. Do you feel like it's worth it? I do, yeah. I mean, well, you have no choice.

11:03I mean, I thought the oil would go up a lot more and I did it on that basis. You have no choice. You have to do it. You can't let Iran have a nuclear weapon. or everything that you see here someday might not exist. And maybe this building might be the only one that does. So, yeah, I think that, look, I mean, I'll get along probably with the Democrats, unless they want to be destructive, but they have the power of the veto. So if we don't like what they're doing, they've already called. They want to talk about things, and that's fine. But, yeah, people, the Iran thing we had to do, and we continue to do it, We have tremendous oil flowing out of the Hormuz straight now.

11:44At the beginning, there was none. And probably that's the primary reason. The price, not the war, the price. Sir, you hold 30 rallies across the country. Do you have any more surprise about the way you closed down the campaign? No, look, I mean, if I were on the ballot, we would have won. You saw the people that were packed, thousands and thousands of people at every rally. And if I was on the ballot, we would have won. But they just you couldn't transfer that love. There was such love at those rallies. It was a crowded one. We weren't able to transfer the love to candidates. Did you get any of your aides try to talk about it?

12:23Did you bring that speech on Monday? Which one are we talking about? What are the reflecting? Did any of your aides advise you to do something? I heard it was a very good speech. Got great reviews. That was only a speech on the reflecting. But that had nothing to do with anything else. That was a speech very much like this is today on this incredible place that we're building at the White House. It's going to be here for many, many years and serving our country well. That was only a sort of a ribbon cutting because the reflecting pool hasn't worked since 1922. It's, you know, over 100 years. It's never worked.

12:57So it's leaked and was always a mess. And we fixed it. We made it great. That was not a speech. I was just talking about the reflecting pool and then a couple of other comments. I mean, our speeches were really the speeches made at the 30 rallies. And those speeches were, that was tremendous love. It was pretty amazing.

13:20I can't tell you that. They may tell you, but I can't tell you. No, no, no. Not even a little bit. I think it would destroy. I think it would destroy the Democrat Party if they did that. It was impeachment for no reason. What for having a successful country? Our country is more successful now than at any time in its history. Watch the beam go up.

13:50That was the president again commenting on the midterms for the first time directly this afternoon. just to quickly recapitulate any of this that could be market moving. He said, I'll get along probably with the Democrats, but also reiterated, I have a veto. Iran, he said, we had to do. And he said, probably that's the primary reason, kind of agreeing with his vice president there, but clarifying it's not the war, it's the price in terms of the fallout. And then turning back to James LeCere with Capital Alpha Partners, James, he said, you know, if I were on the ballot, we would have won. Couldn't transfer the love, he says to the candidates.

14:23Didn't address corruption, which you and I were talking about just before that. But I'd love a quick final thought here for our listeners. Well, Trump is standing in the White House ballroom under construction, and he is talking about the reflecting pool again. Now, how much reflection does that show you on why this election did not go well for him? I think that he really needs to get focused on a strong economic message if it's not too late to do whatever he can do to get oil prices down and to back off the erratic tariff policy. Although, do you think this is because he senses like his term is coming to a close and he seems to be looking well beyond none of these policies from the ballroom to the reflecting pool to around those all, to me, smack more of legacy moves than they do.

15:10Well, that's exactly right. He's thinking about legacy, what lives on behind him, whether it's the ballroom or a triumphal arch or any architectural feature. And much of what he's been thinking about too has to do with his foreign policy legacy. There is a meeting scheduled for China in November 18th and 19th, where he will be meeting with President Xi and President Putin of China and Russia, respectively, and trying to set up some sort of summit, possibly to end the war in Ukraine. I think that's highly unlikely at this point. The meeting may still happen, but I do think the president is looking for things that define his future, and I think he'll be looking largely at things that he can do unilaterally in order to define that future.

15:53All right, James Lucier, Capital Alpha Partners, thanks for joining us this hour. Thank you. Our next guest's attention is also shifting to the lame duck session of Congress that starts after Thanksgiving and to the implications thereafter for tech, bond yields and gold. Paul Christopher is head of global investment strategy at the Wells Fargo Investment Institute. Paul, you share the opinion of a couple others I've spoken with today that don't necessarily think that bond yields are going to stay down here because of AI policy or what have you. The trends could be pointing in the other direction.

16:23So that, where else, what are your takeaways and thoughts today? Yeah. Hi, Kelly. That's right. We think our target for the 10-year Treasury next year, end of next year, five and a quarter to 575. And the real drivers there look to be things like the real yield. That is to say, the competition between the Treasury on the one hand and all these private company issuers of AI-related tech debt, that competition is going to be bidding for a fixed number of dollars, and that's going to drive up yields. So the upward pressure from that, upward pressure also from Treasury issuance, which we don't think is going to decline very much going into next year.

17:00And investors still worried about inflation and the path of the Fed. Will the Fed really be as tough as they are sounding after having passed in October, if they lose control of the markets in terms of persuading that they are in control, then you could see more upward pressure on long-term yield. So we don't think we're done yet with the uncertainties in the bond market. What does that implicate or imply, I think is the word, for the dollar, for gold, for Bitcoin? Yeah, if the economy can stay solid here, we think it can, then you should see some upward pressure on yields coming from those sources that I mentioned.

17:39We don't think they're just questions. They're actual trends that are in place. And that will mean probably a little bit stronger dollar. It doesn't help Europe that they're energy dependent and really a value-oriented play in the first place. Their banks are starting to ease back a little bit. So the euro is going to weaken. We think the yen weakens some more. That's going to help the dollar at the margin. We're not looking for a big trend higher in the dollar. And then for gold, the real question is, how does inflation rise relative to bond yields? If inflation stays tame, we think it still has some upside to it.

18:14But if it can stay tame and yields just rise, well, then that's not going to be so good for gold. But anything short of that, if yields don't rise by as much or inflation rises by more, then you could see the opposite picture. Do these results put the whole business cycle in jeopardy, especially one that's led by AI? And let's maybe just put AMD on the screen. Reported last night doubling its data center revenue, if I'm not mistaken. Shares were jumping after hours in this morning, and now they're about unchanged. Now they're slightly lower. So is there now this kind of concern that's going to overhang the market about just how many data centers are going to be built, just what capex in spending is going to look like?

18:53Well, let's be clear. the real issue for data centers right now is regulation. And at the state level and at the federal level, there's too much to lose by not doing data centers in locales, in different locales around the country. So they'll figure that out going forward. But the real issue for AI is, can these companies produce the revenues? Not just the revenues, I should say, but the free cash flow and the earnings that investors are now demanding. And we think it's going to be more of a selective game going forward. If you can't do it, then investors are going to sell you and punish you. But if you can do it, you'll continue to rise.

19:27But the spending rate in AI is just very difficult to imagine that that's suddenly going to fall off the table. We think that's one of the main drivers of the economy next year. We're looking for solid but not spectacular economic growth next year. Are you overall changing anything in terms of your outlook for the major averages or the kinds of sectors that you think could do the best here? No, not changing anything. The midterms certainly don't change that. Your previous guest alluded to it. The way I put it is that midterms are a clearing event. It clears away some uncertainty. So yeah, markets are going to rally today, but it's encouraging to see that there's some hope for AI going forward in the market.

20:05We think, again, it's going to be a selective year, a year of maybe differentiation in AI, not so much a momentum trade. But we still think we still see the S &P next year, 86 to 8 ,800. We see 2.2 percent growth in the economy. That's not far off of the 30-year average for GDP growth. So things look good for next year, but we think investors will have to be more discriminating about where they put their money. All right, Paul, thanks. We'll circle back on that specific question in a few more weeks or months. Paul Christopher from Wells Fargo. In the meantime, SpaceX and Tesla are trading lower after the midterm results last night.

20:41They're off the lows, though. SpaceX down less than 4 percent right now. The Texas governorship flipping to Democrats for the first time in decades. And Elon Musk, whose empire we're looking at, spent nearly half a billion dollars on the election cycle. He posted on X last night data centers in space looking pretty appealing right now. Let's bring in Tusk Ventures' Bradley Tusk for more reaction and big picture thoughts, Bradley, on what just happened. And what are your takeaways? Yeah. I mean, look, I think last night was pretty clearly just a repudiation of the way things are and the way this country is going.

21:13But we're seeing this effectively every two years go back and forth one way or the other. I think it's because people just have a lot of anxiety. If you think about the data center opposition, it's not really about data centers, right? What could people have objections to? Energy usage data centers understand they have to pay that. Water usage data centers know they have to provide their own. Community engagement, they're fine with that. It's really that there is just this uncertainty that the world is changing really fast. They think that AI might take their job, hurt their kid. Modi keeps saying it's going to kill us all.

21:45And that anxiety has to go somewhere. And so data centers are physical, tangible places that need permitting and zoning. And so people are able to oppose that. But fundamentally, they just have this broader anxiety about how fast the world is changing, how fast life is changing, and that they can't really keep up with it. And that's why we keep seeing these big political swings. We're showing the anti the so-called anti data center Democrats who won last night. And in some cases, this was a more front and center issue. And other cases, as our previous guest said, more more of a side topic. But there is this anxiety that you're talking about.

22:21So is it going to slow things down? Do you know more or less than had the Republicans had a good night instead? Really? Yeah. Look, in my experience, I've been working in and around politics now for over 30 years. Every policy output is the result of a political output. Every politician makes every decision solely based on the next election, nothing else. And when data centers are this unpopular, I saw a poll recently that said that people would rather have a prison built in their community than data centers. I don't know if they would really pick that, but at least they told the pollster that.

22:54When it's this unpopular, no politician in either party is going to be like, yeah, I'll sacrifice my next election so that Sam Waltman can become a trillionaire. And so I don't think it really matters. I think that you're not going to see much happen at the federal level because Congress will move bills, but the president's not going to sign them. So it's a gridlock there. And at the state level, you're going to have a lot, but from both sides. In the 2026 state legislative sessions, about 101 different bills to regulate AI in different ways passed. And it was almost a 50-50 split between blue states and red states.

23:25And that's what's going to happen again. And so, yes, there is a lot of work to do if you are a data center company, any kind of ad company, whether it's a frontier model or an application of it. But you're going to have to do that work across the board, regardless of who's a judge. You have kind of six big takeaways. You wrote these up on Substack. People should check them out because there's a lot of good stuff in here. I don't know if this so much is a market impact. Your first one is really about J.D. Vance. Is there, you know, and maybe to some extent, Elon Musk, just to circle back to that topic, showing perhaps his money or his support don't do we say don't go as far?

24:00Does that matter for his empire of companies? For Elon, I'm not sure really matters. I think it's gonna have an unpleasant two years. And look, Elon bet on Trump. And most people, when they kind of engage with Trump, it doesn't go well for anyone but Trump. And Doge was a disaster. He had a falling out with Trump. He spent hundreds of billions of dollars that had no impact whatsoever. And now he's probably going to get hauled before Congress left and right in investigations. And so, you know, he is not the first person to experience that's what happens when you deal with this president. But I don't think that the elections ultimately impact Elon's businesses that much one way or the other.

24:36But for J.D. Vance, I think it's massive. One, his top two candidates were Ramaswamy and Husted in Ohio, and they both lost. By Vance embracing a pretty despicable ad from Ramaswamy, that's going to be used against him for time immemorial. He's the vice president to a very unpopular president, except with the base. He is the progenitor of a war that is highly unpopular. And Trump, by the way, doesn't like losers. And if he thinks that J.D. can't win the presidency, I don't think he's going to support him. And so I think that Vance's ability to move forward is pretty limited. I think both Vance and Rubio are going to be put in a really tough spot where If you are a Republican candidate for president in 28, you should be coming out as hard as you can against the Iran war right now.

25:21AP exit polling yesterday showed that 60 percent of voters don't like the war. It's especially unpopular among MAGA. Vance and Rubio are stuck with it, right? It's their war. It's their administration. And that's a great opportunity for DeSantis or Sarah Huckabee Sanders or someone else to really distinguish themselves. Let me leave it there then, which is oil prices are falling quite substantially today. gasoline futures and so forth. There are people saying, you know, before we read too far, you're absolutely right about the conclusions, takeaways about the war. And you think in theory that winds it down unless there's escalation before there's de-escalation.

25:57Because again, this president is unpredictable. Right. That could happen. And keep in mind, Congress had the ability to just say no war unless they passed a law through the War Powers resolution and then the president has to sign it. Presumably he would veto it. And then if he vetoes it, you have to override him. That's still going to require 11, maybe 10 votes in the Senate and 25 to 30 ish votes in the House. And that's not a guaranteed thing at all. I do think that if there's one place where Republicans could get away with voting to override Trump, this is probably the place. But yeah, I don't think the elections last night really mean that the war is ending anytime soon.

26:37Or maybe we're all missing the point. We should buy, you know, Cisco and the major food providers because universal school meals, which I don't think anyone would look, even though we're worried about the budget. But like, come on, universal school meals. Yeah, but you know, only nine states feed every kid. But there was a bunch of governors who won last night that made this a campaign topic. Rob Sands in Iowa, David Crowley in Wisconsin, Aaron Ford in Nevada. So hopefully they will all stick to their word and move it forward. Josh Shapiro says he hasn't been able to do it because the state Senate there was in control by the Democrats.

27:10And now it's going to be. He should be able to do it. J.B. Pritzker so far has refused to fund school meals. Hopefully he'll finally stop doing that now. So there's real opportunity. And who knows? Maybe even a Gina Hennels in Texas will decide to try to feed kids. It's one of those issues we don't talk enough about, probably, but it still still reverberates. Bradley, I really appreciate it. Thanks, Bradley. Thank you. Coming up, our coverage of this market rally and the midterm results continues. Home builders are surging after last night's sweep. The home construction ETF, the ITB, is up 7 % for its best day in about a year and a half.

27:45What it all means for the future of housing policy in your backyard. And yes, in these stocks. That's next.

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28:38and global economic news, monetary policy decisions, and key results and statistics that may impact your trading. Download the latest episode and subscribe at schwab.com slash marketupdatepodcast or find Schwab Market Update wherever you get your podcasts. Your call is important to us. Please hold for the next non-existent representative. Ever get a pit in your stomach when you realize your afternoon is about to become a bureaucratic cage match over a bill? Someone will be with you shortly. Skip it. Save time by letting Experian negotiate your bills and look for new deals and savings opportunities.

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29:27Welcome back. One of the strongest parts of the market today is the homebuilder trade. Names like Lenar, D.R. Horton and Pulte are all soaring seven to eight percent. Diana Olick is here to explain. Diana, now, granted, they've had a pretty tough time of things, but there seems to be this idea of what some more actual homebuilding going on now. Well, potentially, yeah. Look, the Democratic's week of Congress could address several issues that are plaguing today's housing market through policies affecting the economy and through direct legislation. In a research note, UBS's John Lovallo wrote, Democratic control of Congress raises the potential for lower tariffs, which we estimate represents about$7 ,500 of additional cost per home, a de-escalation in the conflict in the Middle East and a less restrictive approach to immigration policy.

30:16Now, the Middle East conflict has resulted, of course, in higher diesel fuel prices, which hits construction vehicles and higher interest rates. The average rate on the 30-year fixed is now about a full percentage point higher than it was a year ago, with rates taking off at the start of the Iran war. Immigration policy under the Trump administration has hit homebuilder labor hard, with many citing that workers in some areas just simply aren't showing up. As for the potential legislation, though, there are two big ones to watch. The More Homes on the Market Act is a bipartisan bill that would double capital gains exclusions.

30:49That's aimed at creating more housing turnover. And then there's the First Home Affordability Act, which is a 10 percent first time home buyer tax credit. We'll see how they do in this new Congress. Representative Maxine Waters, who is likely to become chair of House Financial Services, will push for down payment assistance as well. But, Kelly, as you know, most housing regulation happens on the state and local level. And they had passed that big, how was it called, the road to 21st century road to housing. Yeah, thank you. So were some elements of this already going to take place or is this really a game changer in terms of state politics with Democrats in charge?

31:29Well, there were several propositions that did pass, a couple that didn't. In California, you had a couple that were aimed at juicing the housing market. There were some bond propositions, which gave about$11.5 billion for assistance in building more multifamily housing. You also had one that was homebuyer assistance for builders of new homes. There was one, though, that didn't pass, which was aimed at speeding up environmental reviews. But given what's going on environmentally in California, it's not surprised that didn't pass. There was also one in Massachusetts that aimed to create more density by changing zoning laws.

32:03That one is very close and still hasn't been called yet. That's a little of the nimbyism, not in my backyard. But, you know, we do need more housing. And so they were looking to put more density. And so, again, those are the kind of things that are going to happen on the state and local levels. But, you know, as I just said, there could be more potential federal legislation that could use some of the housing market and potentially help builders. All right. Diana, thank you for now. Appreciate it. Diana Olek. Let's get to Frank Holland for the CNBC News update. Hi, Frank. Good afternoon, Kelly.

32:31There's a large police presence at the Citigroup offices in Tampa right now. The county sheriff's office telling people they're responding to an active threat and to stay clear of that area. Aerial footage from WFLA in Tampa showed SWAT units moving through the corporate campus and hundreds of people evacuated to the surrounding area. We have reached out to Citigroup and local authorities for more details. House Democrats scheduled a leadership election meeting for November the 18th. That's according to our sister network, MS Now. Hakeem Jeffries is in line to become Speaker of the House. It's unclear as of now if anyone will challenge him.

33:03Speaker Mike Johnson said this morning he will not seek a leadership role in the GOP. Current Majority Leader Steve Scalise and House Judiciary Chairman Jim Jordan have announced their intentions to run. Industrial giant 3M agreeing to settle litigation brought by thousands of plaintiffs who alleged they were hurt by PFAS, commonly known as Forever Chemicals. The company will pay$7.3 billion over nine years, as many as 120 ,000 people could participate in that settlement. Kelly, back over to you. All right, Frank, thank you, Frank Holland. Coming up, stocks in China are jumping after the U.S. midterm results.

33:36Is that because slowing AI here gives China an edge? And don't forget, the president is scheduled to meet with President Xi in China in just a couple of weeks. We'll get the setup ahead of the summit next.

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34:37You give it a project, close your laptop, and when you come back, the job's finished. No matter your industry or role, your agent has the skills to help every team stay in their flow. Seriously, make work less work with Gemini on Google Cloud. Check response, subscription required. This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab. Schwab Market Update, an original podcast from Charles Schwab, provides an information-packed daily market preview on stock updates, U.S. and global economic news, monetary policy decisions, and key results and statistics that may impact your trading.

35:12Download the latest episode and subscribe at schwab.com slash marketupdatepodcast, or find Schwab Market Update wherever you get your podcasts. Welcome back. It's not just stocks here in the U.S. that are surging today after the Democrats' midterm victories. China's benchmark index is climbing more than 2 percent, and it comes just after Chinese authorities were reportedly seeking to halt IPOs and secondaries in an effort to prop up their struggling markets. We talked about that yesterday. Eunice Yoon is in Beijing with more. Different tone today, Eunice. Yeah, definitely a different tone of the lifting of the uncertainty of the over the U.S.

35:52midterms seem to help with this rebound. Also, there's been a lot of suspected buying by state backed firms and other funds, also known as China's national team. That's been helping to lift sentiment. But longer term, Chinese investors are concerned about the impact of the U.S. midterms on the stability of the stock markets here, as well as the U.S.-China relationship. And the sentiment here has been quite fragile. AI-related stocks have been down on the year. And the concern is that if the Congress is united, aggressive, under more democratic leadership, that that could potentially unwind the AI trade in the U.S.

36:35and then in turn in China. So Chinese investor sentiment, as I mentioned, is quite fragile. And there are reports now that the chip giant YMTC, so this is a local rival to Micron, has put on hold its own IPO. And then on the U.S.-China relationship, the term Trump's total defeat is a top-trending topic on Chinese social media. President Trump is scheduled to arrive here in just a matter of weeks, where he's going to be meeting with President Xi Jinping. And there has been a lot of discussion here and speculation if he is going to be sticking by the deal of a strategic stability, I should say, that was negotiated between the U.S.

37:26and China. or if he's going to stick with his kind of softer and less aggressive stance on tariffs and Taiwan. And if that's something that the Chinese would be able to see, the foreign ministry today stressed the importance of maintaining its strategic stability pact with President Trump. On social media, the fixation has been on Texas, probably no surprise because of all the AI data center build out there. There's been a lot of discussion about James Tallarico, Gina Hinojosa. And as it relates to Elon Musk and his businesses, the term Musk's poor return on Texas spending has also been trending in China.

38:09Kelly? You know, it's almost like they follow it more closely than we do, practically. But I understand why and the impact of this AI race in particular. Eunice, thanks. We appreciate it, Eunice Yoon. President Trump just made some comments about his secretary of defense. Let's get to Megan Cassella for more. Megan? Kelly, the president was just reacting, of course, to last night's results, and he was asked specifically whether he's considering replacing his secretary of defense, Pete Hegseth. And he told reporters, no, I think he is doing a very good job. This comes after there was some reporting this morning that he was, the president was starting to ask his advisers whether he should consider replacing Hegseth.

38:46And, of course, coming after voters yesterday, and exit polls showed there was really a resounding rejection of this Iran war. The president, though, saying for now, at least, Hegseth's job is safe. The president did, though, acknowledge the role that the Iran war was playing in the party's losses last night. He did defend his decision to start the war in the first place, but he was talking about the vice president's comments about the Iran war being the reason the party suffered losses. The president said that was largely true because the war drove up gasoline prices a little bit. But he said, Kelly, quote, if I had to do it again, I'd have to do it again because long term it's the only answer.

39:21So standing by that decision, even as he acknowledges it was part of last night's losses, Kelly. And the secretary of defense, Megan, thank you. Megan Casella. Let's bring in Michael O 'Hanlon. He's director of research for the foreign policy program at Brookings. Michael, we're curious. We were just talking China defense. They have this summit coming up with Xi and Putin in a couple of weeks, 17th and 18th, if I'm not mistaken. the Russia-Ukraine war. How do how does policy on all of these things shift if you think it does after what happened? Hi, Kelly. Well, in many ways, it doesn't change very much because the Democrats are not going to be able to pass a new War Powers Act, for example, that would restrict the president's ability to command troops or to send them into battle more than they currently are.

40:04And they're not going to want to cut back on funding for, let's say, the naval blockade of Iran or the escort mission. At least I don't think they will. I don't think they should, because whatever you think of the war, we are where we are. And the best hope is to squeeze Iran and try to get a decent negotiation going as they run out of oil and run out of money. And the blockade and escort mission is not really costing us that much, and it's not risking that many lives. So on that issue, I don't think Democrats have that much of an opening. They certainly can get more into the nitty-gritty of budgeting.

40:37You know, Golden Dome, the air and missile defense President Trump has proposed, but given very little detail on. Democrats don't have to fund that. They don't have to fund all of it. They don't have to provide the extra$350 billion that President Trump requested for this fiscal year. So there are a lot of things like that where they can be more effective. On AI, you mentioned in regard to China, I don't know that Democrats are really going to want to restrict. Well, we'll see. But I think more guardrails would make sense. It seems pretty commonsensical after all the crazy things that have happened in AI in 2026.

41:10It doesn't have to mean that you're fundamentally slowing research, however. It just means you're more careful when you release things. So again, I see on balance relatively limited power and influence for the Democrats going forward. They will look to exert more influence on the budget, but that's the big area where they have opportunity. Michael, is Lockheed a buy down 7 % today? Can you wear your stock broker hat for me? Because we're talking in many ways about the pocketbook for these defense companies, literally who's going to be paying the bills. And we also like to talk about what kind of hot conflict demand is going to look like for the machinery that they produce and all of that.

41:51But it sounds like what you're saying is the real issue here is a version of austerity that may be coming for the defense budget. Yeah, Kelly, I don't know if it's going to be austerity. What I would predict would be slow, steady growth. I think slow, steady growth above the rate of inflation. I think that's where the consensus would be. I know a lot of Democratic Party strategists. I might even call myself one, although I'm not having any great influence in the party debates. But people, generally speaking, believe in the idea of getting tougher vis-a-vis China, of modernizing our military to deal with the potential for great power deterrence and competition.

42:30And these are not things you do by cutting the defense budget. So, yeah, there'll be some pressure from the left side of the party perhaps to freeze the budget. But I think people know we live in dangerous times. And the bigger question is really how do you establish a slow, steady pace of growth so you can channel money? into the most important areas and recognize that, you know, Secretary Hegseth is not all that popular, but there's some good people beneath him who are doing some really important work on building up the industrial base, like the deputy secretary, Steve Feinberg. I don't know that that many Democrats have a big beef with Feinberg or his agenda.

43:04So I think slow, steady, real growth is the most likely path forward. All right. That's helpful. Final question then, because the president is obviously now looking toward his legacy. We were talking about this at the top of the hour, whether it's monument building in D.C., trying to do the Iran escalation this year. Now, Russia, Ukraine, that was a campaign issue for him trying to end that. So his relationship with China, in what way do you expect him to spend the summit and the time thereafter that he still has trying to make the impact that he wants to make? I don't know, but I do think there are two things he's doing right and that he should continue.

43:42One of them is with the Iran war, whatever you think of whether we should have gone to war and I wasn't a supporter. But at this point, President Trump, I think, has found the least bad military option, the combination of blockade and escort mission. Keep squeezing Iran. It's running out of money. Let's see if we can get them to the negotiating table on favorable terms next year. It may have to wait till 2029, but I still think it's the least bad strategy. And on China, even though President Trump is all over the place on tariffs and I don't really support what he's doing there, I think his desire to have a good personal rapport with Xi Jinping is solid and smart because we don't want the potential for the two superpowers of the 21st century to have a small crisis escalate into a big one, partly because of distrust and dislike among top leaders.

44:28So I would give him credit for establishing this positive rapport with Xi Jinping. He needs to be a little steadier on the policy specifics, but I'm glad he's going to China. I read that op-ed about patience and when you're taking, Because I thought, wow, he's talking about 2020 and 2029 with Iran. So that's a much longer view, I think, than the market was anticipating. But oil prices down today tell you it could be manageable. Michael, thank you. Appreciate it. Thank you, Kelly. Mike Lohanlon with Brookings. Coming up, AMD shares unable to hold their gains post-earnings. They're back in the red by half a percent.

45:00The company ramping up its data center growth expectations again. But is that in danger now given the midterm results? We'll discuss that next.

45:13Welcome back. The chips are selling off today on the midterm results. Even as the broad markets are rising, Marvell, the biggest laggard, down about 9 percent. Now that's the second name on your screen. The SMH broadly down a little less than three. Even AMD unable to stay positive despite strong results last night. Let's get to Seema Modi with more on that. Seema? A strong set of numbers, just as you said, Kelly. AMD surprising the street with also a bullish forecast for next year and now expects 80 percent of its revenue to be coming from data centers. The Democratic sweep, though, is raising some pressing questions, right, about data center construction and the implications it's going to have for the neoclouds that buy AMD and NVIDIA chips.

45:51Baird analysts this morning say it's the blue wave elections for governor that comes as a big surprise and creates more of a logistical challenge and sentiment headwind, adding that Oracle and CoreWeave are more exposed because of the capital raises they've undergone. Put it simply, they need these projects to turn over quickly and begin producing revenue or else questions are going to rise around the servicing of that debt they've taken out. It comes ahead of CoreWeave and Nebius reporting earnings next Wednesday, where investors will want an update on future capital raises. It will follow Oracle's decision last week to commit to a smaller number on how much it plans to raise, about$20 billion.

46:27And now the question is whether the election headwind pushes these companies to raise more because of an elongated data center timeline. The yield on Corwee's bonds now back about 15 percent. You've been watching this one every day. This is a new high, Kelly. And it's credit default swaps, which act as insurance for investors, also widening. But interestingly enough, take a look at the hyperscaler credit spreads. Microsoft, Amazon, Meta, those have tightened. That just gives you a sense of how fixed income investors are positioned. Gene Varnova, CEO last week, telling me 2026 to 2027 projects remain safe.

47:01What's up for question? Are data centers beyond that time frame, Kelly? And to your point, business models that are more reliant on the build out look a little bit more vulnerable today than others. Seema, thank you very much. Right. Seema Modi. Coming up, Baird. They saw it coming. The blue wave. They downgraded this name, our mystery chart, in July. Anticipating policy changes could derail the data center build out. It's down 30 percent since then. send me at Kelly CNBC your guesses and we'll reveal the chart and talk to the analyst about what comes next after the break.

47:36Welcome back. A huge win for Democrats could be a huge loss for data centers. And that's according to our next guest. He says the NIMBY is not in my backyard. They're not going away. And data center construction could, quote, grind to a halt amid new regulatory challenges. So what could this mean for the companies behind the build? Let's ask Mig Dobre. He's a senior analyst at Baird covering machinery and industrials. And Mig, you flagged Caterpillar as a risk here. That was our mystery chart a few months ago. What do you see playing out now? Good to see you, Kelly. And yes, I think you framed it all very well.

48:13The winds are certainly shifting. We are seeing this today in action following the election. But frankly, the science had been with us for a while. Opposition to data centers has been pretty widespread across the country. I can tell you here in Wisconsin, where I am based, I have had the opportunity to visit with various communities that are undergoing the construction projects for data centers. And we got to see just the opposition in action at grassroots level. And that's really kind of what framed our call and changed our minds in terms of where trends were going as early as July. This is an election year.

48:52And from from our perspective, such involvement on a part of the local communities was going to have an effect. And we're seeing that clearly today, not only in Wisconsin, but all the way to Texas. So the first several guests on the show and many other names are all kind of dismissing it. They're saying, you know what, it's not really going to slow anything down. It's all just posturing and positioning and they're going to find a way to work this out. So I find it very interesting that you, who cover Caterpillar, a name that yesterday we were told is, you know, people have it's a three year wait if you want their equipment.

49:28And all of a sudden, if there's no urgency to get it, could people start canceling those orders or not stockpiling quite as much? So, Meg, I just appreciate that from where you sit, you do see this as a bigger risk. I think that's correct. I do. You have to remember Caterpillar has got close to$80 billion of backlog, and a good portion of that, by our estimate, more than half, is power and data center related. Now, what the question is going to be here is not whether or not this backlog gets canceled, but when and how this backlog gets delivered. A second point that I also think is important here is that any delay in the way the industry build-out takes place has to be put in the context of the increased capacity that not only Caterpillar, but many other industry players and certainly all of Caterpillar's competitors are adding over the next two to three years.

50:22So what we have here is a situation where demand is likely to slow while supply is going up. From an economic standpoint, that's probably not a good thing. And Caterpillar shares are down 6.5 % today. Meg, thank you for joining us. Appreciate it. We'll circle back soon. Meg Dobre. That's it for us. Thank you for watching The Exchange. I'll join Dom Chu for Power Lunch, and we will see Brian for a little surprise after this quick break.

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