US Tech Stocks Rally Strongly With Nasdaq Composite Index Set to Snap Three-Day Losing Streak as Midterm Elections Conclude and Short Covering Expectations Rise

TradingKey - On November 3, Eastern Time, U.S. tech stocks rebounded strongly in early trading, putting the Nasdaq Composite Index on track to end a three-consecutive-session decline. As the U.S. midterm elections took place on the same day, investors focused on which party would control Congress and whether institutional capital would re-increase equity allocations after election uncertainty fades.

Previously, concerns over AI investment returns continued to weigh on tech stocks. On Monday, the Nasdaq 100 Index fell 1.4%, pulling back more than 10% from its October high and entering technical correction territory. Alphabet (GOOGL), Amazon (AMZN), and other mega-cap tech companies' earnings reports and capital expenditure plans failed to dispel market doubts over when massive investments will translate into profits.

As of press time, the Nasdaq Composite Index rose 0.8% to 25,361 points; the S&P 500 Index gained 0.33% to 7,566 points; and the Philadelphia Semiconductor Index advanced 3.13% to 10,650 points.

The UBS Securities trading team believes that seasonality and institutional positioning are creating conditions for a year-end rally in U.S. stocks, with the midterm elections potentially serving as a catalyst for capital to re-enter the market. The firm noted that since 1950, the S&P 500 Index has risen by an average of 1.9% in November, making it historically the best-performing month on average. Meanwhile, hedge funds' net equity exposure remains at a low level.

Lower net exposure implies that institutions have previously reduced their directional bets on stock market gains by trimming long positions or adding short positions. If the election outcome does not deliver unexpected shocks, some capital may re-increase equity allocations; a rebound in stock prices could also prompt short sellers to buy back shares, further amplifying the gains.

UBS also noted that hedge funds' gross exposure remains at a multi-year high, indicating a large volume of mutually offsetting long and short positions in the market. Therefore, concentrated portfolio rebalancing following a change in market direction could induce significant short-term volatility.

In addition, as the midterm elections draw to a close, reduced political uncertainty surrounding tech stocks is also improving short-term sentiment. If Democrats take control of the House of Representatives and Republicans hold the Senate, major policy shifts could face more checks and balances, potentially shifting market focus back to corporate earnings and Federal Reserve policies, though budget negotiations could still trigger volatility. If Republicans retain control of both houses, sectors like finance, traditional energy, and AI infrastructure may gain support from expectations of policy continuity, while the impact of fiscal spending and U.S. Treasury supply on yields will still warrant attention.