Although the polls had predicted a Democratic victory, the scale of the win did come as a surprise. The Democrats will now dominate both houses of Congress and will, at the very least, curb Donald Trump’s policies. The market’s reaction has so far been mixed – whereas the interest rate and energy markets showed signs of relief, the equity markets reacted with extreme volatility.
The first few days of November were quite something: first, a political “blue wave” in the United States caused a stir, before the equity markets turned a deep red in the space of no time.
With their surprisingly clear victory in the mid-term elections, the Democrats secured a majority in both houses of Congress. Whereas Wall Street initially reacted with sharp gains, a veritable stock market earthquake followed just one day later. The S&P 500 lost more than 4%, and the technology-heavy Nasdaq fell by over 5%; as a result, the US equity markets recorded their sharpest single-day losses since the tariff shock surrounding “Liberation Day” in April 2025. Semiconductor shares, which had previously enjoyed a run of success, were hit particularly hard, losing about 12% in a single trading day.
But what has actually changed in the space of just 24 hours? The election result undoubtedly marks a political turning point. Although Donald Trump remains a powerful president, he will have to come to terms with a Democrat-controlled Congress in the future. This will make it significantly more difficult to push through new laws, additional spending, and key political initiatives. At the same time, political oversight of the government is likely to increase.
Recovering interest rates and energy
This development has also bolstered the recent recovery on the interest rate markets. Congress holds budgetary authority and can therefore cut funding for border security, deportations or, for example, defence. The energy markets, too, are expecting a certain degree of relief as a result of the Democrats’ increased influence in Washington, as demonstrated by the recent fall in crude oil prices. Donald Trump will continue to be able to shape US foreign policy unhindered, but post-election polls show that high energy prices, in particular, were one of the key factors in the election. Opposition within his own party to the war in Iran is also growing, as demonstrated, for example, by the initial reactions of Vice-President JD Vance.
AI trade is showing cracks
As already mentioned, the reaction on the equity markets was mixed. A divided government in Washington has, at least historically speaking, by no means been negative for shares – political deadlock can ultimately also mean greater predictability, even if this seems hard to imagine under President Trump. That being said, increased uncertainty is likely to lie ahead for the rapid expansion of AI infrastructure, as the recent slump in the technology sector has illustrated
The Democrats are clearly advocating for stricter regulation and, during the election campaign, have often opposed the unhindered construction of data centres at a regional level. However, a certain slowdown need not necessarily be a bad thing. After all, the order books of numerous companies across the AI value chain are already well filled, and even among the hyperscalers, pressure from investors to scrutinise the enormous capital expenditure more closely has been mounting for some time. A slightly more moderate expansion could therefore well contribute to healthier and more sustainable development.
Convincing earnings season
The latest earnings season also highlighted just how ambitious expectations are in certain sectors – despite strong figures, some companies were effectively penalised for offering more cautious outlooks. Overall, however, the picture is a positive one – about 84% of reporting companies in the S&P 500 exceeded earnings expectations. The recent market turbulence is thus set against a backdrop of fundamentals that remain sound.
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