Stocks fell sharply after yesterday’s post-election rally. Yesterday’s rally can be viewed as a movement of relief: investors who received the certainty of the divided government they had been expecting. Today’s reversal reflects a confluence of factors.

Earnings: We have noted that earnings drive stock market returns, particularly expectations for future earnings. Last night, another AI-related company reported rising memory costs and a drop in revenue. AI stocks were already volatile amid questions about whether heavy capital spending will ultimately generate stronger earnings. Investors have been willing to pay a premium for future growth, so when results suggest costs are rising faster than revenue, valuations can come under pressure quickly. Importantly, one company’s report does not settle the question. Still, the report reminds investors that growth expectations are high and that the path from spending to profits may not be straightforward.