Economic Fundamentals Drive Tech Valuations More Than US Midterms

In the week of October 26, 2026, the largest US technology companies will publish their quarterly results – nine days before the midterm elections on November 5. Google, Microsoft and Amazon are releasing their earnings, while investors simultaneously await potential monetary policy signals from the Federal Reserve. The question of whether political developments or fundamental business data drive valuations more strongly receives particular attention in this environment.

Economic Fundamentals Trump Election Cycles

An analysis of 31 election cycles by US Bank shows that economic fundamentals – not election results themselves – are the primary drivers of market returns. In eleven of the examined election periods, inflation shocks, rising rates, the global financial crisis, wars, financial strain or deteriorating business conditions coincided. Statistical tests could not establish a reliable midterm effect: a t-test comparing different outcome groups found that the differences were neither large nor consistent enough to establish a reliable election effect – results ranged from losses exceeding 30 percent to gains close to 50 percent.

According to the analysis, the economy remains the primary driver of market returns. Employment, consumer spending, inflation, interest rates and corporate earnings directly influence companies' revenues, costs and access to financing.

Technology Earnings in Focus of Valuation Debate

Strong or disappointing quarterly results from technology companies carry disproportionate weight for sector valuations in the current environment. According to analyst commentary, convincing figures and reassuring guidance could restore confidence in the Nasdaq. Disappointing margins or further cost increases would instead reinforce concerns about elevated valuations.

The technology sector is particularly sensitive to interest rate movements. Falling bond yields would primarily benefit growth-oriented companies whose valuations depend more heavily on expected future earnings. The ten-year US Treasury note traded at around 4.999 percent on October 26, after briefly falling below 5 percent on Thursday.

Higher Volatility in Tech Stocks

IT stocks would fall more sharply than the broader market in negative scenarios, as the sector has posted a beta above 1 over the past five years – it amplifies general market movements. An analysis by Pictet Asset Management sketched a scenario in which US equities could fall 10 to 15 percent, with IT shares declining disproportionately.

Monetary Policy Inflection Point Before Elections

The Federal Reserve meets on October 30, six days before the midterm elections. The team around Bank of America economist Aditya Bhave holds a consensus-outlier view that the Fed could raise rates by 25 basis points. The rationale: a significantly higher-than-expected inflation result in September strengthens the case for a rate hike in October. Markets priced in only around a 10 percent probability of such a move on October 26. The president of the New York Fed expected no rate hikes in 2027.

Sector-Specific Influences Beyond Politics

Political decisions affect certain industries through regulation, tariffs, semiconductor support and competition with China. However, companies are investing billions in artificial intelligence because they believe the technology can boost productivity and enable new business models – economic forces that do not disappear because an election produces an unexpected outcome.

Chipmakers showed relative strength on Friday, October 25: Micron Technology rose 2.5 percent, and US-listed SK Hynix shares gained 4 percent.

Valuation Risks in Tension

The coming week will show whether the fundamentals of the major technology companies justify the high valuations or whether disappointments lead to corrections. Political uncertainty before the midterm elections forms more of a backdrop than a direct valuation factor – as long as economic data remains stable and companies can credibly support their growth narratives.