BlackRock CEO Larry Fink Thinks This Midterm Election Issue Could Lead to a Recession

The S&P 500 (SNPINDEX:^GSPC) can be a gauge of how well the overall economy is doing. And right now, things are still going reasonably well. While there are challenges in the economy with high inflation, gross domestic product continues to grow, and the S&P 500 has hit new records this year.

There is, however, also cause for concern. A continued rise in interest rates could slow the economy and potentially weigh down the markets as well. BlackRock CEO Larry Fink also sees possible trouble ahead, due to the upcoming midterm elections and what may happen afterward. Artificial intelligence (AI) data centers have faced significant opposition in communities, and are a key election issue, and Fink believes that "If we have a moratorium of some sort in this country, we will be in a recession."

The expansion of AI data centers has fueled growth and opportunities

While many people see AI as a bad thing and which can lead to job losses, it's also created many jobs and opportunities. As companies have been creating AI data centers, there has been a need for greater investments in infrastructure and construction.

Many stocks are also thriving due to the expectation that there will be more growth ahead as a result of investments in AI. Fink says, "So much of our economy is based on the buildout of this capex." Many big tech companies involved in AI, such as Nvidia, have benefited from the AI-related growth in a massive way. Nvidia's stock has surged more than 400% in the past three years. Another chipmaker, Broadcom, has generated returns of around 290%.

^SPX data by YCharts

Tech stocks have been doing well in recent years and are a big reason why the S&P 500 has done as it has. A potential halt in AI data center construction would be problematic for their growth prospects, potentially send the economy into a recession, and stocks would likely fall, possibly triggering a crash.

Investors should consider diversifying outside of tech

There is a growing risk in the tech sector these days due to inflated valuations of many stocks and heavy reliance on the expectation of more AI-driven demand.

Pressure on either of those issues could adversely impact the overall market, which is why now may be a good time for investors to seek out some diversification outside of tech and into defensive stocks, which can offer a bit more safety.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends BlackRock, Broadcom, and Nvidia. The Motley Fool has a disclosure policy.