Your stock portfolio increasingly hinges on the bond market - and the midterm elections

By Joy Wiltermuth

Tech stocks in late October caught the cold that for months has been a drag on the corporate bond market

Early voting for the U.S. midterm elections in Brooklyn on Oct. 24, 2026.

Your stock portfolio increasingly hinges on what happens in the bond market - and the midterm elections.

Tech stocks in late October caught the cold that for months has been a drag on the corporate bond market.

Poorly performing high-quality "hyperscaler" debt has become a feature - not a bug - of credit markets this year, as buyers of corporate debt struggle to keep up with the capital needs of the AI juggernaut.

"The bond market has a cold. The equity market may have a cold; and the culprit comes from tech," said George Catrambone, head of fixed income, Americas, at DWS, on Friday.

The tech selloff sharpened Friday, landing giants like Amazon (AMZN), Alphabet (GOOG), Meta (META,) Intel (INTC), Oracle (ORCL) and SpaceX (SPCX) all in the red, along with semiconductor SOX stocks and other AI hot spots EWY in the market.

Stock market gains have relied on tech in recent years. But bond portfolios also now hinge on tech borrowing, upping the stakes for all things AI to pay off, as planned.

Concerns about the industry's $1 trillion in expected yearly capital expenditures aren't new. Yet investors this week began rewarding those willing to tap the breaks on heavy debt issuance. There's also been swift backlash for others.

Oracle's beleaguered stock finished the week higher after executives indicated a lighter borrowing load for AI going forward. Shares of Alphabet were punished on signs that AI's advance may encroach on a crucial part of its business, even as its data-center spending push continues.

The recent shift in tone also speaks to why investors welcomed Microsoft's (MSFT) new $25 billion bond on Thursday. The company carries higher credit ratings than the U.S. government, has issued less debt than its peers and reported positive free-cash flow of $18.6 billion during earnings this week.

Of note, Microsoft's 10-year tranche of bonds priced at a yield of roughly 5.5%. That compares with the 10-year Treasury yield BX:TMUBMUSD10Y at 4.93% on Friday, according to FactSet. Not every big tech company is expected to get as favorable of pricing.

"Of course it's going to see good demand," said Peter Boockvar, chief investment officer at OnePoint BFG Wealth Partners, of Microsoft's bond deal. Yet for most companies borrowing to build AI infrastructure, the cost of capital has gone up, he added.

Higher borrowing costs can eat into future growth, not only for tech stocks, but the U.S. economy. Companies deemed a greater risk of not repaying their debts have been punished in October.

This come as AI-related debt supply has been on a blistering pace of more than $400 billion this year, according to the latest Goldman Sachs estimates, more than double the volume of 2025.

The rush for funding has increased the cost of capital. Cracks in riskier parts of the corporate "junk bond" market and among neoclouds like CoreWeave (CRWV) have grown more apparent. The change has caught the U.S. central bank's attention.

Federal Reserve Chairman Kevin Warsh spoke to the trend on Wednesday after the central bank opted not to hike interest rates in October.

"Interest rates get in the cracks, interest rates affect directly or indirectly, almost everything," Warsh said Wednesday. "You've seen market participants that are discriminating between the kinds of investments they want to make," he added.

Boockvar told MarketWatch he thinks the Fed might not hike rates in December if the market selloff picks up more steam. Fewer Fed rate increases could help households juggling hot inflation, high gas prices and increased borrowing costs. Mortgage rates could ease.

Friday was month-end, which can trigger limited liquidity and exaggerated moves. The jitters around stocks were evident as Wall Street's Cboe Volatility Index VIX, or "fear gauge," surged in the afternoon, before ending the session nearly 13% higher at 19.42.

Until recently, the AI supply deluge had been siphoning off demand for U.S. government debt since this summer, pushing up benchmark 10-year Treasury yields BX:TMUBMUSD10Y to a 24-year high of 5.3% in early October. But buyers flooded back to the Treasury market when AI tech stocks began to lurch lower.

"Treasurys are finally getting a flight-to-safety [bid] that's long overdue," said Catrambone at DWS.

Market volatility around the U.S. midterm elections could make any new planned equity raises trickier to pull off. Big market selloffs also make placing new debt deals in the hands of investors harder.

The S&P 500 SPX shed 1.8% on Friday, but was still 10.7% higher on the year. Total returns for the ICE BofA U.S. Corporate index turned more negative over the summer as the AI debt deluge intensified along with rates volatility. The corporate bond index was sitting on a negative -0.95% yearly return through Oct. 29, according to Dow Jones Market Data.

Negative returns can hurt when companies keep asking investors to provide blank checks for AI, especially when borrowing costs have increased, capital has begun to be more rationed and free-cash flow at many of Silicon Valley's marquee companies has become rather scarce.

"A lot more scrutiny is going on in the bond market," said Matt Wrzesniewsky, head of fixed-income client portfolio Management at Vanguard.

The increased scrutiny isn't only because of credit concerns. Opposition to AI datacenters has been a growing point of worry for many, but not all voters.

Any moratoriums on building datacenters that stem out of the midterms could trigger less capital flowing to the AI build-out, said Catrambone at DWS.

Hints of any slowdown in AI spending could clobber the S&P 500, as MarketWatch's Jamie Chisholm wrote in early October. Questions also would start piling up around the checks already written for the AI build-out.

-Joy Wiltermuth

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10-31-26 1003ET