Wall Street Declares AI Sell-Off Over, Bets on Year-End Rally Built on Deleveraging, Seasonality, and Reset Valuations

After a post-midterm tech rout, major banks including JPMorgan and HSBC are re-entering equities, citing cheaper valuations, historical seasonal patterns, and cleared leverage as the foundation for a year-end S&P 500 push toward 8,000.

A sharp post-midterm sell-off in AI and tech stocks appears to have run its course, at least according to the Wall Street consensus forming in real time. On Monday, the S&P 500 surged 1.92% to 7,518.61, the Dow climbed 918 points (+1.79%) to 52,204, and the Nasdaq 100 led with a 2.76% gain to 27,733 as investors piled into beaten-down names. The bounce arrived less than a week after what multiple analysts described as the worst AI-sector sell-off since 2025.

The bull case rests on three pillars: valuation reset, seasonal tailwinds, and deleveraging completion. JPMorgan maintained its S&P 500 year-end target of 8,000, arguing that forced position unwinding — margin debt had been near record highs — created an attractive entry point. Dubravko Lakos-Bujas, the bank's global market strategist, noted that hyperscaler pricing power and cash flow potential remain intact despite short-term political headwinds from the Democratic sweep and potential data center regulation. Seasonal data provides the statistical backbone. BlackRock's analysis shows the S&P 500 averages a 14% gain in midterm election years since 1970, versus 6% in non-midterm years. November averages 1.85% returns since 1950 — the best month by mean — and December posts positive returns 70% of the time since 1928, per Yardeni Research. These are historical tendencies, not guarantees, but they give institutional allocators cover to re-enter. Independent tech analyst Luke Lango offered a more cautious framing, acknowledging the rally could be a dead cat bounce while arguing that concerns about AI capital expenditure cuts are overblown. His thesis: any data center slowdown would be politically imposed, not demand-driven. "Spending will be stretched, not stopped," he wrote, drawing a distinction between a 3-6 month rough patch and the 3-5 year structural story. BlackRock's Rick Rieder pushed back directly on the AI bubble narrative, characterizing the sell-off as a mechanical "unwind and rebalance" triggered by excessive concentration in tech rather than a fundamental reassessment. HSBC followed suit, adding tactical equity exposure and flagging upcoming catalysts including Nvidia earnings and the Anthropic IPO as potential momentum events. The critical test comes this week. Tuesday's October CPI print will shape the Fed's rate path and determine whether the rally has fundamental support or is running on positioning alone. Producer price data on Friday and a series of Fed speeches will add further signals. Ned Davis Research's proprietary momentum indicators flashed a sell signal during Thursday's worst selling but noted the underlying trend remains upward — they expect any buy signal to emerge quickly if the bounce holds. The pattern here is familiar: a leveraged market corrects sharply, clearing weak hands; institutions declare the worst over and re-enter at lower prices; seasonal and flow dynamics provide the next leg up. Whether the underlying AI capital expenditure story remains intact through a new regulatory environment is the question that won't be answered by year-end — it's the 2027 question. For now, Wall Street is betting the plumbing is fixed and the calendar is friendly.