Wall Street Rallies as Democrats Sweep Congress in Midterms

Summary

• The S&P 500 rose over 1 percent after Democrats won control of both chambers of Congress.
• Asian technology stocks fell first on fears a Democratic sweep would slow the AI buildout.
• Analysts told the Times gridlock in Washington historically leaves stock markets largely undisturbed.

The latest

U.S. stocks reversed early losses and climbed on Wednesday, with the S&P 500 up more than 1 percent at the New York open, as Democrats moved to take control of Congress in a midterm result that exceeded the party's own expectations. European bourses had already rallied. Asia closed mixed after an initial slide driven by doubts over the artificial intelligence trade.

Details

• The market moves: The S&P 500 gained over 1 percent as New York trading opened, according to The New York Times, and European markets rose broadly. Japan's Topix closed nearly 1 percent lower after touching its weakest intraday level in months, while South Korea's KOSPI reversed early losses to end up 0.6 percent.
• The AI trade: Asian shares tumbled on early results pointing to a Democratic landslide, on the pre-election theory that a sweep would slow the AI buildout and end the region's technology rally. Taiwan Semiconductor Manufacturing Company fell 1.5 percent and Japan's SoftBank Group dropped 3.2 percent before the mood shifted.
• The reversal: Alicia Garcia-Herrero, chief Asia-Pacific economist at Natixis, said she did not expect Democrats to kill the goose that lays the golden eggs. Hyperscalers behind the AI buildout, including Alphabet and Meta, pointed to gains once U.S. exchanges opened, the Times reported.
• The exceptions: Investors singled out names carrying heavy debt, high spending or thin revenue. Oracle fell, the only hyperscaler to begin the day lower. Elon Musk's AI venture SpaceX also moved lower, a signal of the scrutiny expected on his overlapping roles in politics, government and business.
• The strategist view: Mike Bell, head of strategy at RBC BlueBay Asset Management, described the midterms as "a political tornado" but judged markets unlikely to be blown around by the outcome. Several analysts framed a split Washington as a status quo signal for equities, which historically reads as bullish.
• Oil and rates: Brent crude, the global benchmark, fell sharply to around $102 a barrel, extending declines recorded during talks between the United States and Iran. The yield on the 10-year Treasury, which sets the reference for consumer and corporate borrowing, slipped to 4.91 percent. The dollar fell alongside it.
• The Iran factor: Several analysts said gridlock could push President Trump further toward foreign policy and the war in Iran, while giving Congress more levers to constrain it. Jane Foley, head of foreign-exchange strategy at Rabobank, said consensus still fears higher oil prices if Trump intensifies pressure on Tehran.
• The historical record: The Franklin Templeton Institute calculated that the S&P 500 averaged a 14.9 percent gain in the 12 months after the 10 midterms held under Republican presidents since 1954, with comparable moves regardless of which party took Congress.
• The dissent: Strategists at the research arm of Amundi Investment Solutions wrote before the vote that shutdowns, debt-ceiling brinkmanship and budget gridlock under a Democratic Congress are greater risks, and that at current yield levels gridlock may not deliver the relief trade of earlier cycles.

Background

Divided government typically stalls major fiscal legislation, leaving tax and spending policy close to unchanged. Investors have historically read that paralysis as predictability, even as it raises the odds of funding fights and debt-ceiling standoffs.

Between the lines

The sharpest reaction came from Asian technology stocks, not U.S. ones, suggesting the market priced the election mainly through the AI buildout rather than domestic fiscal policy. The simultaneous drop in oil, Treasury yields and the dollar points the other way: those moves tracked the Iran talks. Oracle and SpaceX falling while Alphabet and Meta rose indicates selective scrutiny of leverage, not a retreat from AI.

What's next

Watch the progress of U.S.-Iran negotiations and Brent crude's path from $102 a barrel, the 10-year Treasury yield after its drop to 4.91 percent, and the first government funding deadline facing the new Congress.

Source: The New York Times