Coming Up for Air. The past couple of days have felt like a few weeks. Fortunately, Friday was (mostly) a good one on Wall Street.

The Dow Jones Industrial Average did fall today, losing o.5%. But the S&P 500 and Nasdaq Composite gained 0.3% and 1.1% respectively. That wasn't enough to rescue them from the red for the week though. The Dow was down 0.9% for the week, while the S&P lost 2.7% and the Nasdaq fell 3.4% over the past five tumultuous days.

The October jobs report released this morning, which showed surprisingly strong payroll gains and a slight dip in the unemployment rate, calmed investors' nerves a bit on Friday. It's a sign that the labor market isn't losing steam despite the threat of AI taking more white collar jobs. Yes, that increases the odds of a Fed rate hike in December -- but the stock market seemed to take that in stride.

So what should investors do now? I spoke to several people this week about the aftermath of the midterms and what may lie ahead for Wall Street as well as the broader economy.

First, data centers aren't dead. While the AI boom may slow somewhat, it's unlikely to grind to a halt. And if anything, the possibility of more disciplined spending (even if it's mandated by Capitol Hill and state governments) isn't the worst thing in the world.

"AI angst in the equity market is taking away some of the concerns about AI leading to overheating of the economy," said Matt Bush, U.S. economist with Guggenheim Investments.

And Sam Rines, director of active ETFs for WisdomTree, noted that fears of data center moratoriums in places like Texas might be overblown. "If you think this radically changes the outlook for data center buildouts, it doesn't," he said, adding that a slowdown in the pacing of the buildout might actually be good news for big hyperscalers like Amazon, Alphabet, Meta Platforms and Microsoft.

"The hyperscalers may not have to raise as much money," he said. "They can use free cash flow a bit more."

An AI reset could even be welcome news for the Fed. "There may be more rational spending instead of bazooka-like capex on AI," said Jeff Blazek, co-chief investment officer of multi-asset strategies at Neuberger. "That could be a good thing since it may relieve some inflation pressures."

Investors are likely to remain on edge for the rest of this month. Traders are waiting for earnings from Nvidia on Nov. 17 and Anthropic's expected pre-Thanksgiving IPO for more signs about what's next in AI.

Jim Caron, chief investment officer of portfolio solutions at Morgan Stanley Investment Management, told me investors will need to be patient. "There is still a lot of demand for AI," he said. "That doesn't change but investors have to recognize that the debate was about the timing of returns on invested cash. What the market is now assessing is whether the blue wave could mean stiffer headwinds for some time."

In other words, don't bail on the AI trade just yet. But don't expect the kind of heady gains we saw from chip stocks and other AI beneficiaries earlier this year to return anytime soon.

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This Weekend's Magazine

The Calendar

Inflation data is the focus next week, with two reports from the Bureau of Labor Statistics on tap. With the labor market in solid shape, it'll be inflation that determines the path of interest rates in the near term. The BLS releases the consumer price index on Tuesday and the producer price index on Friday.

Nearly 90% of S&P 500 Index companies have reported third-quarter results and the year-over-year earnings growth is about 29% so far. That's actually a slight deceleration from the second quarter's 33% jump, and apparently not enough for investors as the S&P 500 is down nearly 6% since from the all-time high it hit at the beginning of October.

Eleven S&P 500 more companies are slated to report this week including Constellation Energy and Skydance on Monday, and Applied Materials and Cisco Systems on Thursday.

-- Dan Lam

What We're Reading Today

Chip Stock Bloodbath Is Case Study in the Risks of Leveraged ETFs

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Musk Kills Tesla Cybertruck. Why He Had to Shoot the Elephant.

Gap and 5 Other Dividend Stocks Safe From the AI Trade

And this week's cover story: The $40 Trillion Debt Endgame

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