Thoughts on the Market
2026-09-03 · Hosted by Mike Wilson · Morgan Stanley
Executive Summary
Morgan Stanley's Michael Zezas and Ariana Salvatore previewed three policy catalysts for investors this fall: the November 3rd midterm elections and their implications for AI data center pushback, a September 24th U.S.-China meeting, and year-end fiscal deadlines including a potential government shutdown and the National Defense Authorization Act. Salvatore said data center opposition doesn't split cleanly along party lines — races in Ohio, Texas, and Pennsylvania show candidates from both parties proposing conditional build-out frameworks or more restrictive pauses — meaning the debate will likely persist past the midterms regardless of which party gains ground.
Key Stories & Changes
1. Midterm Elections and Data Center Backlash
November 3rd midterms seen as the most consequential near-term catalyst; debate has shifted from macro-level CapEx concern to granular, race-by-race analysis
Governorships flagged as more consequential than some Senate races for data centers, since governors can appoint public utility commissioners (Texas cited as a key example)
Opposition to data centers cuts across party lines: in Ohio, both the Republican and Democratic gubernatorial candidates propose a "conditional build-out"; in Texas and Pennsylvania, opponents propose more restrictive pauses than what's currently in place
Firm expects this to "persist and remain an issue even after November," regardless of midterm outcome, though federal policy incentives aren't expected to change
2. Morgan Stanley Remains Constructive on AI CapEx Despite Political Risk
Firm's internet team still forecasts over $1 trillion in hyperscaler AI capital spending next year
"AI sovereignty" theme — governments wanting to control their own AI stack and capabilities — is cited as a driver reinforcing, not undermining, continued spending
Companies are deploying targeted mitigation measures for local backlash: Ratepayer Protection Pledges for electricity price concerns, Google's proposed regulatory framework for water usage, and Amazon's disclosure of data center water usage
Firm characterizes responses as "tailored," not one-size-fits-all, but sufficient to remain constructive on the overall buildout
3. September 24th U.S.-China Meeting
Goal for both sides described as maintaining "managed stability" established at the May summit, where deliverables centered on trade (agricultural purchases, Boeing purchases)
Expect "some small incremental change" to deliverables, particularly around AI dialogue
Firm also sees potential for "tactical escalation," alongside continued risk of further AI-specific technology restrictions and divergence between the U.S. and China
4. Fiscal Policy Deadlines: Shutdown Risk and NDAA
Treasury buybacks and total debt crossing the $40 trillion threshold have put renewed focus on government funding
A continuing resolution passed both chambers, punting the funding debate until after the elections, creating "a potential latent risk of another shutdown" in December
The National Defense Authorization Act (NDAA), the annual Pentagon funding bill, must pass on a bipartisan basis in December; midterm election outcomes could shift lawmaker incentives around this debate
5. Historical Midterm Seasonality
Firm's equity strategy team notes a tendency toward "a little bit of negative seasonality" heading into midterm elections
Flagged potential for a "knee-jerk reaction" if Democrats outperform in November, but the firm doesn't expect this to be durable, viewing it more as investors pulling forward anticipation of the 2028 presidential race
Trends Identified
1. Data Center Politics Have Become Bipartisan and Race-Specific, Not Ideological
The clearest analytical takeaway is that data center opposition no longer maps to party affiliation — candidates in both parties are proposing restrictive measures in some races and conditional support in others. This means investors need granular, race-by-race tracking (especially gubernatorial races with utility-commission appointment power) rather than a simple "which party wins" framework.
2. AI Sovereignty Is Reinforcing, Not Undermining, the Global CapEx Cycle
Even as domestic political backlash grows, the parallel trend of governments wanting to control their own AI infrastructure stack is cited as a structural tailwind for continued hyperscaler spending — suggesting the same anxieties driving voter pushback may also be driving government-level demand for sovereign AI capacity.
3. Corporate Mitigation Strategies Are Becoming Increasingly Sophisticated and Localized
The shift toward tailored responses (ratepayer pledges, water usage frameworks and disclosures) signals hyperscalers are treating local political risk as a manageable, addressable variable rather than an existential threat to the buildout thesis. ---
Sentiment Analysis
Overall Market Sentiment: Constructive, Policy-Aware
The firm remains fundamentally bullish on the AI buildout and broader secular growth trends, while explicitly flagging near-term political and seasonal catalysts investors should track rather than ignore.
Risk Factors Highlighted
Bipartisan data center opposition: Growing, cross-party political pushback in key gubernatorial races could affect pending AI infrastructure projects at the state level.
December government shutdown risk: The continuing resolution only punted the funding debate; a shutdown remains a latent risk once post-election incentives shift.
NDAA negotiation risk: Must pass on a bipartisan basis in December; midterm outcomes could complicate this typically routine process.
U.S.-China tactical escalation: Despite an expected "managed stability" outcome from the September 24th summit, the firm flags real potential for escalation and further AI-specific tech restrictions.
Rising federal debt levels: Total debt crossing $40 trillion, combined with Treasury buybacks, is putting renewed market scrutiny on fiscal sustainability.
Historical midterm seasonality: Negative seasonal equity performance heading into midterms is a recurring pattern investors should be prepared for, even if not fundamentally driven.
This episode was covered in today's [The Market Signal — 2026-09-03](https://marketsignal.beehiiv.com/p/the-market-signal-2026-09-03), a cross-source synthesis of multiple podcast reports.