Midterm Elections, Anthropic IPO, and Federal Reserve Policy: How Will AI Be Priced in the Next Two Months?
Author: Capital Flows Research Team
Translator: TechFlow
TechFlow: As nearly half of the S&P 500's gains are tied to AI mega-cap stocks, capital markets are tightening under the unprecedented interplay of macro variables and micro fundamentals. In this major research report, the Capital Flows Macro Research team deconstructs three core variables that will dictate the valuation trajectory of AI and tech stocks over the next two months from a sharp cross-asset perspective: the political landscape of the midterm elections, the circular financing structure for computing power supply chains disclosed in Anthropic's S-1 filing, and the backlash against Federal Reserve policy errors and long-end term premiums. The report points out that the hundred-billion-dollar Capex spending by traditional hyperscale cloud vendors has pushed return on invested capital to a critical juncture, while the high-leverage debt of neoclouds exposes massive default risks.
As Anthropic's order book lays bare the real supply and demand for computing power, tech entities lacking substantive cash-generating capabilities will face valuation liquidation, while true Alpha is undergoing drastic restructuring across cross-asset derivatives, utilities, and U.S. Treasury curve volatility.
The mid-term election dynamics, Anthropic's IPO valuation, and the Federal Reserve's interest rate path will simultaneously reach key catalysts over the next two months. The increasingly bloated capital expenditures and fragile balance sheets of tech giants will reconstruct the pricing logic and capital flows of the entire AI trade.
Liquidity and Credit Cycle
Since Trump took office in early 2025, deregulation has served as the core catalyst for the entire liquidity cycle and credit issuance. In financial markets, deregulation is often an implicit micro-variable because it subtly dictates the core macroeconomic data we observe, yet rarely receives its due attribution. CEOs of major corporations consistently prefer to credit their outstanding financial performance to their own exceptional execution rather than a permissive deregulatory environment. When conditions deteriorate, they blame the macro environment; when conditions improve, it is hailed as the wise decision-making of leadership.
Traders command excess premiums precisely because they can pierce through the carefully packaged forward guidance of CEOs and perceive the true underlying dynamics unfolding in real time. Hedge fund giant Ken Griffin previously astutely pointed out the vast chasm between the cumbersome and stringent regulatory regime under the Democratic/Biden administration and the highly favorable business environment fostered by the Trump administration. When market-wide expectations begin to descend into irrational frenzy, the fundamental duty of traders and asset managers is to inject objective correction and accountability mechanisms into the market.
The Rules of the Game Are Being Rewritten
AI regulatory frameworks, mid-term election dynamics, and Federal Reserve monetary policy are simultaneously reaching their boiling points, set to face decisive confrontations within the coming month. With over half of the returns from the benchmark index flowing directly from the AI sector, this is undeniably a historic moment that will determine the trajectory of the global market. The entire AI trading logic rests entirely on the core pillar of "how quickly capital expenditure (Capex) translates into returns," and any marginal tightening of the regulatory environment could significantly slow the momentum of this round of capital deployment.
The core catalysts driving these gears are already clearly laid out on the immediate timeline: the mid-term election outcome will officially be settled by early November; the highly anticipated Anthropic IPO is expected to make a grand entrance in mid-to-late November; meanwhile, the rate market is rapidly pricing in the potential for a December Fed rate hike. Each of these catalysts will stack sequentially in an interconnected manner, fundamentally reshaping the rules that govern market capital flows.
If you have already found the market increasingly complex and unpredictable, trading difficulty will escalate exponentially moving forward. As we enter 2027, the threshold for all types of trades will rise significantly due to several factors: Democrats are seizing greater congressional control; the Federal Reserve is lagging behind the economic curve, forced into reactive catch-up mode amid secondary inflationary pressures; and Anthropic's IPO is poised to pull back the curtain on the actual volume of genuine demand behind neoclouds and hyperscalers. All these variables will thoroughly reshape macro probability distributions and capital flows as we approach year-end and early 2027.
The Regulatory Cliff Approaches
During President Biden's term (2021–2025), the Democrats simultaneously controlled both the House and the Senate for the first two years, only to face a divided government in the latter two. Holding a "trifecta" during his first two years, the Biden administration effectively wielded absolute control over the federal government and legislative proceedings.
This is why, upon Trump's electoral victory, the entire political landscape and regulatory tone instantly flipped from a Democratic model to a Republican one. For the past two years, Republicans have firmly held the trifecta, which explains why such large-scale deregulation and sweeping policy shifts could concentrate and explode within such a short timeframe.
Chart: Correlation trend between Democratic bidirectional chamber win probabilities and market AI regulatory-sensitive asset baskets
The greatest tail risk currently facing AI trades—and indeed the broader U.S. economy—is the possibility of the Democrats reclaiming control of both chambers in the mid-term elections. This would not only plunge the entire political system into deep gridlock but also trigger a comprehensive clearing of antitrust regulation. The core question dominating market nerves right now is whether the Democrats will achieve a complete sweep of both chambers. We have already observed that the performance of AI regulatory-sensitive asset baskets is highly synchronizing with the probability curves for a Democratic sweep on betting markets.
The mid-term elections carry unprecedented weight because the massive AI valuation framework is highly leveraged on the election outcome. Meanwhile, corporate capital structures are growing increasingly fragile, and broad market index gains are almost entirely monopolized by the single AI narrative.
Chart: Historical peak of tech giants' Capex as a percentage of free cash flow in the S&P 500
This raises a core question: Once political frameworks and regulatory tailwinds reverse, how severe will the financial markets' pain be? We can glimpse the answer through the data in the following charts:
Chart: Comparative trends of historical Capex and depreciation/amortization expenses for hyperscale cloud vendors
The unprecedented scale of Capex in the benchmark index has pushed us to a historical turning point: the tech industry is no longer the ultra-high-margin, asset-light, free-cash-flow-rich money-printing machine of old. Instead, today's tech giants are transforming into heavy industrial conglomerates burdened by massive tangible assets and heavy balance sheet liabilities.
Alpha Generation and Macro Trading Architecture
The above macro backdrop outlines the core logical framework for professional traders and macro hedge funds to deploy asset allocation and position hedging over the next two months.
This section will delve into the following five progressive dimensions:
• Analysis of mid-term election capital flows and their profound impact on various sectors
• Deconstruction of Anthropic's S-1 prospectus and the pre-IPO pricing window
• Comparison of Capex spend versus expected returns and its guidance for sector rotation
• Fed policy simulation relative to inflationary pressures and regulatory restructuring
• Concrete trading opportunities with highly asymmetric odds
The Mid-Term Election Variable
Chart: Weekly net outflow from Nasdaq tech growth stocks to traditional cyclicals post-2024 election
Looking back at the moment the 2024 election ultimately confirmed Trump's victory, the market experienced an instantaneous surge of capital frantically fleeing tech stocks and rotating heavily into pro-cyclical sectors:
The certainty of deregulation policies, combined with the removal of legislative friction from a Republican swept Congress, drove massive capital to flood like a tide into traditional industrial and energy sectors that had been severely suppressed during the Democratic tenure.
Chart: Historical tracking of continuous capital rotation inflows into the materials sector
Chart: Position allocation trends of continuous capital rotation into the energy sector
Chart: Tracking of continuous capital rotation inflows into the industrial utilities sector
So, who absorbed this massive pool of capital? The answers lie in raw materials, traditional energy, and advanced manufacturing industrial giants:
Chart: Valuation risk premium model for high-capex tech sectors under expectations of regulatory easing
As we fully enter the countdown period for the mid-term elections, the pressing question everyone faces is: How much regulatory dividend has the current market already priced in? And what kind of re-calibration will asset valuations face if the Democrats reclaim the House or the Senate?
Chart: Rebound elasticity of short-term hedging positions unwinding under a divided Congress scenario
At this stage, the market has obviously begun pricing in a portion of risk premium for potential political black swan events, which is the fundamental reason behind the significant slowdown in net capital inflow velocity into pro-cyclical sectors:
As the election dynamics unfold, if the Democrats capture only the House while losing the Senate, the market will enter a state of divided Congress and legislative gridlock. This means no new large-scale deregulation bills will pass, but existing implemented policies won't be forcibly repealed. However, should the Democrats unexpectedly sweep both chambers to regain a trifecta, the credit pulses and massive liquidity supplies that have fueled the U.S. equity market will face a cliff-like, large-scale retracement.
To be explicit, this dynamic logic of macro博弈 is already a universally recognized core consensus within today's professional active trading circles.
When Chamath Palihapitiya and Elon Musk publicly and heatedly debated this topic on X (Twitter), their discussion was absolutely not baseless speculation detached from market fundamentals; rather, they were targeting the most dangerous legislative cliff facing the tech industry's future:
Having mapped out the capital flows surrounding the mid-term elections and the deep strategic博弈 in the AI space, let us now turn our focus to the second heavyweight catalyst: the IPO spectacle of Anthropic.
Anthropic IPO and the Compute Order Book
Anthropic's S-1 registration prospectus has just officially gone public. Simultaneously, decentralized derivatives exchange Hyperliquid immediately launched the pre-market predictive perpetual contract xyz:ANT for this asset:
Pre-market trading contract link: https://app.hyperliquid.xyz/trade/xyz:ANT
Chart: Long/Short observation tracking list for assets sensitive to mid-term elections and Anthropic IPO
As we move toward the mid-term elections and year-end closing, the xyz:ANT pre-market trading price will become the most indispensable and pivotal barometer in the entire market:
Chart: Deconstruction diagram of the circular financing structure across the AI industry disclosed in Anthropic's S-1 prospectus
This weighty S-1 prospectus marks the first time the entire market can truly see the actual operating mechanism of the highly closed-loop "circular financing" within the AI compute supply chain.
Chart: Anthropic's committed compute procurement spend scale until 2028 and order book breakdown
Chart: Total five-year compute commitment vs. historical Capex of each hyperscale cloud vendor
This S-1 document essentially serves as a "compute supply chain order book" that directly verifies whether the hundreds of billions in Capex by hyperscale cloud vendors can be genuinely absorbed:
Core conclusion: Anthropic has explicitly committed in writing to purchase a total volume of computing power over the next five years that far exceeds its entire existing cash reserves on the books! This means the company's very survival is completely tied to continuous equity-dilutive refinancing and relentless blood-donation/blood-transfusion channels in public capital markets.
Chart: Marginal leverage model of Anthropic revenue forecasts vs. compute Capex absorption capacity
Chart: Comparitive curve of annual revenue growth (ARR) between OpenAI and Anthropic
Chart: Evolution trend of marginal model training costs under scenarios of narrowing compute supply-demand gaps
Anthropic's actual operating revenue and growth rates serve as the most core baseline metric to answer the market's biggest question: "Can terminal AI commercial demand actually support such an enormous capex cycle?"
You can gradually see that the complete transparency of Anthropic's actual financial revenue and its demand curve delineated for hyperscale cloud vendors will either thoroughly validate the entire compute spend narrative or directly ignite a euphoric bubble of severe compute oversupply.
Capex Spend Compared to Expected Returns
Who is the largest buyer of Capex on the current global market? It is precisely the five tech giants: Google (GOOGL), Meta (META), Microsoft (MSFT), Oracle (ORCL), and Amazon (AMZN).
Chart: Ratio of tech giants' self-developed chip (TPU/Trainium) purchases vs. NVIDIA GPU deliveries
Macro Trade: Interest Rates, Energy, and AI Capex Rotation
The aforementioned five giants are not only the most frenzied buyers of compute on the market, but also the ultimate monopolists supplying universal compute infrastructure to the entire market:
Chart: Analysis of debt leverage and balance sheet fragility exposure among neocloud compute providers
This means that during this transition period, if real software revenue demand from the terminal market fails to keep pace with explosive compute supply—resulting in severe compute oversupply—these tech giants will be forced to bear the painful cost of hundreds of billions in GPU hardware suffering rapid technological obsolescence and depreciating value rotting on their balance sheets.
However, even more fatal are those neoclouds and specialized compute suppliers taking on massive debt and expanding blindly; they are the most vulnerable links directly bearing the staggering risk of balance sheet bankruptcy:
This is precisely why an extremely intense and deepening dispersion in pricing trends is emerging among GOOGL, META, MSFT, ORCL, and AMZN across both equity and credit bond markets:
• Oracle: The highest-risk target with the purest leverage profile. Its Capex has ballooned to fully four-fifths of total revenue, vastly exceeding its operating cash flow. Expansion is sustained almost entirely by frantic external debt issuance.
• Meta: Holds the highest beta attribute among the top four giants, but for a fundamentally different reason. Its Capex size has completely pierced through operating cash flow, dragging its underlying fundamental return into negative territory, forcing it to rely continuously on large-scale corporate bond issuances to plug the hole.
• Microsoft: Occupies middle ground. Once off-balance-sheet finance leases are consolidated, its actual Capex intensity is staggering, but the massive and diversified high-margin Azure enterprise software subscription provides a safety cushion.
• Alphabet: Possesses the best risk asymmetry across the industry. Its Capex intensity is significantly lower than Meta and Microsoft, while search operations act as the world's strongest cash cow, building an impregnable free cash flow moat.
• Amazon: Shows the lowest risk at the overall corporate equity level, but carries extremely high risk when broken down to the cloud segment. Massive traditional e-commerce retail cash flow masks AWS expense risk, yet the absolute scale of AWS's promised compute Capex is terrifyingly huge.
Chart: Fundamental Return Ratios shifting into negative territory for Meta (META)
The essential metamorphosis of this capital operation mechanism applies to all five tech behemoths. Just a year ago, all five companies could fully fund their Capex relying on abundant internal free cash flow. Today, however, every single one has been forced to turn completely to debt capital markets, using bond issuance to sustain their AI infrastructure arms race.
Chart: Surging Capex vs. Fundamental Investment Return Rate Trends for Google (GOOGL)
You can clearly see why Meta's underlying fundamental real return rate (the purple curve in the chart) is plummeting into negative abyss at an alarming pace as Capex utterly squeezes cash flow generation capabilities:
Google (GOOGL) exhibits the exact same consistent trend signals: https://www.tradingview.com/chart/qorWL7bW/
Purchasing downside puts on META and GOOGL around the mid-term election window offers a highly attractive expression of macro hedging to precisely bet on this round of Capex overdrawn and regulatory risk exposure.
Ultimately, Anthropic's formal listing transaction will act like dominoes, fully detonating and repricing the massive backlog of micro-heterogeneous risks accumulated throughout the AI ecosystem chain.
And all these vulnerabilities at the micro level lead us to a grander and deadlier macro systemic risk: the Federal Reserve's hawkish stance necessitated by stubborn inflation.
Upside Interest Rate Risk
One of the core engines driving economic growth over the past year has been the cost-blind, massive Capex of hyperscale cloud vendors. Yet this near-mad industrial expansion has directly reignited inflation expectations across the entire market:
Macro Trade: Interest Rates, Energy, and AI Capex Rotation
Chart: Decline in long-end U.S. Treasury term premia driving nominal rate adjustment trends
Please refer concurrently to the following deep cross-asset correlation analysis trends:
Chart: Capital rotation flow showing traders exiting tech semiconductors (SMH, CRWV) while increasing bond allocations
Credit Cycle Insights
Chart: Tracking divergence and upward trend of short-term inflation swap rates vs. real rates
The core focus of this subsection is to deeply deconstruct the tightly interwoven logical loop between benchmark interest rates, the macro regulatory environment, and AI Capex capital flows.
Chart: Pressure map on U.S. secondary inflation from overlapping wealth effects and massive fiscal deficits
The Fed's previous passive stance, compounded by the comprehensive repricing of forward rate curves, has pushed 10-year Treasury yields back beyond an extremely precarious key resistance level:
Please note specifically: The recent phased retreat in market interest rates has been driven almost entirely by changes in real rates, while inflation breakevens remain stubbornly elevated:
During this period, which components of long-term nominal GDP are being repriced by the market? You will clearly notice that long-term nominal growth expectations are completely unmoored and spiraling out of control:
Even more alarming is that even on the short end of the curve, alongside the retreat of real rates, short-end inflation swap rates are also reversing course and surging anew:
Chart: Industry-wide inventory-to-sales ratio rebounding to 2021 highs and supply-demand imbalance indicators tracking
As I have repeatedly warned, the massive wealth effect spawned by stock market euphoria is exerting extremely strong secondary inflationary pressure on the service sectors of the real economy. This leaves the Fed completely unable to cut rates significantly without triggering a malignant resurgence of inflation.
Systemic Risk Analysis in Equity and Bond Markets
I recorded a dedicated video today, deeply dissecting the liquidity anomaly mechanisms in the bond market, and how this credit tightening will inevitably spill over and severely crush the high-valuation architecture of tech stocks.
All these severe macro constraints arrive precisely against the backdrop of the nationwide inventory-to-sales ratio nearing the direst levels of the 2021 supply chain crisis, signaling extreme tightness in industrial and energy supply chains:
When the Fed is ultimately forced to buckle to reality and resumes catch-up rate hikes, it will orchestrate a profoundly destructive macro squeeze. At that juncture, all equity assets commanding high valuation multiples across the market will face a violent valuation purge reminiscent of a storm:
Misdirection Strategy: The Unspoken Accord Between Walsh and Bessent to Fund AI Dominance
Potential Trading Opportunities
By now, we have completely mapped out the multiple core driver layers that will decide the market's future destiny: mid-term elections will set the tone for the persistence of regulatory deregulation; Anthropic's S-1 file provides a lens to see through to frontier, real compute demand; and Fed policy will dictate the central discount rate for the entire market.
Chart: Fundamental Return Rate Trend for Oracle (ORCL) Amidst Tech Giant Dispersion
Constructing macro trade positions in such a highly volatile and divergent special environment requires weighing the core variables across two primary dimensions:
Chart: CoreWeave Implied Volatility Spike and Downside Default Risk Pricing Model
First, due to the rapid accumulation of systemic macro risks, the headwinds facing U.S. equity assets are intensifying swiftly (see my recorded video analysis).
Chart: Divergence Trend of Bitcoin (BTC), Hyperliquid (HYPE), and Compute-Transition Mining Enterprises
Second, rate risk will emerge as the strongest driver igniting ferocious volatility across all major global asset classes over the next two months.
Chart: Index Options Implied Volatility Risk Premium Model on Eve of Fed Resolution
Specific Trading Strategy Concepts
Chart: Rebound Elasticity of Russell 2000 and Dow Jones Index Short Hedge Closing Positions
Chart: Scenario Projection for U.S. Treasury Yield Curve Breakout from Consolidation Range
The pricing dispersion among the five tech giants GOOGL, META, MSFT, ORCL, and AMZN will reach extreme intensification within the approaching windows of Anthropic's listing and mid-term election results:
Once Anthropic and OpenAI begin signaling in their financial guidance that "the actual conversion speed of enterprise-level compute demand lags far behind infrastructure construction delivery cycles," the targets to suffer brutal valuation compression first will undoubtedly be those highly leveraged neoclouds:
CoreWeave has consistently been the focal point of massive short-selling pressure in the secondary market, as it represents the purest, most maximally leveraged typical vulnerable asset along the unlisted AI cloud compute debt chain:
Ironically, a large batch of crypto miners who previously pivoted entirely to high-performance computing (HPC) and AI compute leasing are now completely replaying the most desperate capital structure liquidity crisis they endured during the last crypto bear market:
As we approach the critical node of the FOMC meeting, major index options markets have accumulated highly significant volatility premiums. With the centralized explosion of institutional hedging and risk-off demand, the extreme inversion of the volatility surface constructs for us a put option portfolio with highly asymmetric payout advantages:
I must once again solemnly emphasize to you all: As we head toward year-end, financial markets are accumulating extremely severe and deadly macro systemic risks alongside massive headwinds.
Today we have dissected an overwhelmingly vast multi-dimensional agenda, and haven't even had time to dive deep into how yen carry trade unwinding and global dollar liquidity tightening will further intensify and amplify these vulnerable links.
During this interim, I strongly recommend leveraging the freely available Model Context Protocol (MCP) tools on the Liquidation Network to monitor real-time anomalies in global institutional capital flows and position liquidation signals at the earliest opportunity.
Thank you for your deep reading and enduring support.
Disclaimer: All content published on this website and Substack is for reference and discussion purposes only. It absolutely does not constitute investment advice, nor does it offer or promise to buy or sell any securities or derivative financial assets. Investing involves risk; decisions must be made with caution.