Dow Jones Industrial Average loses the midterm rally to the data-centre backlash
Wednesday was the Dow Jones Industrial Average's best session since April 2025 and Thursday is on track to be its worst since the same month, on the same election result. The index trades just above 51,500, below Tuesday's close and at its lowest since October 14.
The Dow Jones Industrial Average experienced its best session since April 2025 on Wednesday, but is now on track for its worst since April of the same year following the election results. The index closed just above 51,500, marking its lowest point since October 14 and below Tuesday's close. All 30 members of the index suffered losses, with only Coca-Cola (KO) remaining higher.
Chipmakers were the initial victims of the sell-off, but the decline spread to other sectors as well. The Nasdaq Composite has fallen more than 10% from its October record, with chip stocks expected to have their worst session since March 2020. The Cboe Volatility Index (VIX) reached its highest level since March 31 at 28. Investors viewed Tuesday's result as a reflection of the data-center buildout, with the Dow having less exposure to this trade compared to the other indices.
The price-weighted index means that a stock's impact on the index is based on its share price, not its market size. Companies like Goldman Sachs (GS) and Nvidia (NVDA) contributed to the index's decline, with GS's 6% drop accounting for about a fifth of the points lost. Caterpillar (CAT) was the second-largest drag, as its power generation sales surged by 30% in Q3, largely due to increased demand for data center-related equipment.
Five major US technology companies, including Apple, Amazon, Alphabet, Microsoft, and Nvidia, account for less than a fifth of the index's decline. The remaining four fifths of the decline is attributed to banks, industrials, healthcare, and other sectors. The Senate Banking Committee is expected to pass a resolution on January 1, and Senator Elizabeth Warren has already called for regulators to withdraw three bank capital proposals.
Senator Bernie Sanders and Representative Alexandria Ocasio-Cortez have also introduced the AI Data Center Moratorium Act, proposing a halt to new data center construction until Congress passes AI regulation. Local measures to pause data center construction have been proposed in at least 11 states, with Democrats winning key Senate and gubernatorial races in Texas and Ohio, where data centers are concentrated.
Fitch estimates that a significant portion of planned data center capacity in Texas, Georgia, and Ohio may face regulatory hurdles. UBS predicts that construction pauses could jeopardize about 30% of the capacity planned for 2028. Despite strong economic data, such as falling initial jobless claims and increased productivity, the market remains cautious about the impact of the AI buildout on the economy.
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