US equities rallied on Wednesday after Democrats’ strong election showing fed expectations of a less erratic US trade stance and an easing of tariffs. The Dow Jones Industrial Average rose 2.8%, while the Nasdaq Composite and S&P 500 were each up about 1.6% before lunchtime in New York. A decline in US Treasury yields also supported the move, with markets pricing in lower deficits and spending under a divided Congress. Solar and healthcare shares advanced on hopes for renewed subsidies, but the AI trade lagged.
AI-linked funds fell despite the broader risk-on tone. The Defiance AI & Power Infrastructure ETF (AIPO) slid 7%, and the Roundhill Generative AI & Technology ETF (CHAT) dropped 2%, as incoming Democrats were associated with tougher scrutiny of data centres. Democrats flipped at least five governors’ races, including in Ohio, Georgia, Nevada and Texas, states tied to a buildout described as costing trillions of dollars. In semiconductors, Nvidia (NVDA) and Broadcom (AVGO) edged lower, while Micron (MU) fell 5% and Sandisk (MU) sank 8%, with candidates also floating a stance against any federal backstop for major AI lenders.
Options Strategies for Diverging Sectors
We should adjust our options strategies to account for a sharp split between broad market indexes and tech hardware. While broad index call options look appealing as falling bond yields lift overall market valuations, we need to hedge AI infrastructure and memory chip exposure. Historical pullbacks show that hardware-dependent tech sectors can quickly drop 20% to 30% when state-level regulatory and spending outlooks deteriorate.
For semiconductor and memory chip holdings that are suffering 5% to 8% drawdowns, we recommend buying protective puts or setting up bear put spreads. Elevated uncertainty around state data center approvals will likely drive up option implied volatility over the next few weeks. Using defined-risk options allows us to stay exposed to long-term tech growth without taking a full downside hit from local regulatory delays.
Capturing Upside in Policy-Driven Sectors and Bond Markets
Conversely, we should look at bull call spreads on healthcare and solar equities to capture policy-driven momentum. Renewable energy indexes have historically surged over 15% during past political shifts that favored green subsidies and infrastructure funding. These option strategies offer an attractive risk-reward profile while broad indexes like the Dow surge.
Finally, we ought to use interest rate futures or long call options on Treasury-focused funds to trade the drop in bond yields. Yields on benchmark 10-year Treasuries have eased off recent peak levels near 4.3%, signaling relief in borrowing costs across the wider economy. Rebalancing into yield-sensitive derivatives helps offset the drag coming from our tech and AI positions.
