Stocks closed mostly higher on Friday, but still sharply lower for the week.

The tech-heavy Nasdaq took the brunt of the selling, shedding -3.37% for the week, with the also tech-heavy S&P losing -2.68%. But there was no real place to hide as the small-cap Russell 2000 was down -2.05%. The Dow fared the best, but still gave up -0.94%.

As I mentioned last week, the narrative surrounding the tech/AI sell-off, which expanded to the rest of the market, is concern there could be new data-center regulation from the incoming political body that could slow down the AI expansion.

Adding to the selling pressure were reports of hedge funds being forced to liquidate positions as losses mounted and risk limits were triggered. That last point is important. When highly leveraged hedge funds are forced to sell, they're not necessarily selling because they believe the fundamentals have deteriorated. They're selling because they have to. And when enough funds are crowded into the same trades, that selling can feed on itself, pushing prices even lower and triggering additional liquidations.

While it's too early to say whether that forced selling has run its course, Friday's rebound in technology stocks was nice to see.

One of the biggest questions going forward, however, is whether the massive spending on AI infrastructure will continue at its current pace. But there's a difference between a slowdown in the growth rate of AI spending and an actual decline in spending. And that distinction will be important as investors reassess the outlook for the sector.

In other news, Friday's Employment Situation report came in much stronger than expected, with nonfarm payrolls increasing by 165,000 in October (159,000 in the private sector and 6,000 in the public sector), vs. the consensus for 62,000 (64K private and -2K public). The unemployment rate ticked lower to 4.1% from last month's 4.2% and views for the same.

Additionally, August payrolls were revised higher by 53,000 to 186,000, while September was upped by 31,000 to 60,000.

The biggest job creators in October were Professional and Business Services, which added 70,000 new jobs; Health Care gained 42,000; Transportation and Warehousing was up 25,000; and Manufacturing picked up 19,000 new jobs.

While the stronger-than-expected jobs numbers are encouraging for the economy, they also complicate the Fed's inflation fight. A resilient labor market gives the Fed more room to keep interest rates elevated, particularly if inflation remains stubbornly high.

And that makes this week's inflation reports all the more important. The Consumer Price Index (CPI -- retail) comes out on Tuesday, followed by the Producer Price Index (PPI -- wholesale) on Friday.

But aside from all of the above, and regardless of politics, remember that stocks typically rally after midterms. Since 1950, between election day and the end of the year, it's higher 68% of the time. And looking out over a 12-month period from midterms, the odds improve even more dramatically with the S&P up every time with an average gain of more than 15%.

That doesn't erase the sting of last week. But it's an important perspective nonetheless.

Additionally, the fourth quarter is historically the best quarter of the year. Since 1950, the S&P has gone up 79% of the time, with an average gain of 4.1%.

We'll see if the market can regroup this week and begin their anticipated seasonal and cyclical Q4 and post-midterm rally.

See you tomorrow,