‘A hangover from the big post-election rally.’ What comes next for markets?

Stocks surged after the 2026 midterm elections. The Dow Jones Industrial Average (Dow) rose 3%, while the S&P 500 and Nasdaq Composite each gained more than 1% on November 4. Stocks sharply reversed course the next day and completely erased those gains, however, as a tech-led sell-off spread across the market. The Dow fell 3.4% on November 5, while the S&P 500 lost 4.4% and the Nasdaq plunged into correction territory (more than 10% below its record high) after falling 5.5%. Stocks posted modest gains November 6, and opened higher November 9.

“The immediate post-election rally has run its course,” Chief Global Strategist and Head of the Global Market Insights Strategy Team for J.P. Morgan Asset Management, David Kelly, said. “People are now focusing on the things they were concerned about beforehand, such as the financing of the AI buildout.”

“I wouldn’t make too much of the sell-off,” Kelly said. “This is a hangover from the big post-election rally.”

Meanwhile, his longer-term outlook has not changed. (Please note J.P. Morgan Wealth Management’s investment views may differ from J.P. Morgan Asset Management’s views.)

Why the post-election stock market rally gave way to a sell-off

“Getting beyond the uncertainty of the election result, but also the possibility of a contested election, is a big positive,” Kelly said. That relief may have helped lift the broader market on Wednesday, even as AI-related shares came under pressure.

By the next day, selling in tech had intensified and spread across the market. While the election eased one source of uncertainty for investors, they quickly returned to their pre-election worries – including how the AI buildout will be financed.

“This is normal volatility around elections,” Kelly said. “There was a big relief rally, everyone jumped on board and now people are wondering whether that has gone too far.”

Why the longer-term outlook hasn’t changed

A sharp reversal after a rally does not necessarily signal a change in economic fundamentals. Large market moves can follow one another, and the November 5 sell-off has not changed the longer-term thesis.

“The broad story is still correct, which is that over time this should mean somewhat lower energy prices, moderation in economic growth, lower inflation and probably a lower dollar,” Kelly said.

Two possibilities may underpin the inflation view.

“Negotiating a deal with Iran would be the first sign of disinflationary pressure," Kelly said. "The second thing is if Democrats and Republicans can find some common ground on trying to reduce tariffs.”

In other words, an agreement with Iran could ease pressure on oil prices, while lower tariffs could reduce some costs for businesses and consumers. Neither is guaranteed.

Nor does putting the sell-off in perspective mean dismissing risk. Concerns about financing the AI buildout remain, along with a heavy concentration of tech and AI stocks in the U.S. market and investor portfolios. The distinction is between not overanalyzing a single sell-off and staying alert to risks that won’t disappear with the election.

J.P. Morgan Asset Management's 12-month price target for the S&P 500 is 8,600 points, an implied gain of roughly 15% from the index's level at the time of writing on November 6.

What investors may want to watch next

“For investors, the more important question is: Can a divided government facilitate the steady economy necessary for corporate profits to continue to rise and rates to drift down?” Kelly said.

Whether that happens will depend less on the market’s initial reaction to the election than on what policymakers do next.

One test is whether Congress and the Trump administration can work together. Cooperation on issues such as free trade would be a potential positive for markets, even as the election’s effect on the political landscape remains to be seen. The focus, as Kelly put it, is on “what policy means for the economic reality, not just sentiment.”

That uncertainty is one reason not to treat either day’s move as a trading signal.

“We always tell investors: Don’t try to time or day-trade the market,” Kelly said.

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