Global markets cheer to ‘gridlock’ after Democrats sweep US midterms
Global stocks rallied after the Democratic party swept the US midterm elections settings the country up for political “gridlock”.
Democrats flipped control of both the House of Representatives and Senate, handing the party greater domestic control over US policy and introducing a major blocker to President Donald Trump’s agenda.
In the US, a bill must pass both houses of Congress before being sent to the President to be signed into law.
Wins in Texas and Kansas shocked the political landscape as Democratic candidates flipped traditionally Republican-leaning states.
Wall Street opened in the green on Wednesday with a 2.4 per cent jump on the Dow Jones and 1.7 per cent on the S&P 500. The tech-heavy Nasdaq was up 2.1 per cent.
Jay Woods, chief market strategist at Freedom Capital Markets, said the rally was partly driven by Trump’s “initial tone and reaction to the results” after he confirmed he would accept the election.
“Still more uncertainty looms, but one thing is certain, there will be gridlock and historically this is good for the market,” he added.
In the UK, the FTSE 100 soared 1.8 per cent higher led by a rally in banking giants. HSBC was up 4.5 per cent and Barclays 4.2 per cent.
There was some weakness across European defence stocks following the shift in the US’ political landscape. Babcock fell one per cent and BAE Systems 2.1 per cent.
Tech feels the heat
Early trading following the election saw some sell-offs in tech stocks with the AI trade expected to be impacted. Data centres became a lightning rod issue in Texas, where voters worried the massive facilities will trigger blackouts on the state’s already-strained power grid.
Space X fell three per cent after Wall Street trading began on Wednesday. The firm is headquartered in Texas, which elected a democratic governor in a shock upset. Computing company Coreweave was also down over six per cent.
“Technology stocks… could feel the heat as a Blue sweep raises worries that the sector is in store for greater regulatory scrutiny, especially when it comes to the buildout of data centres,” Kit Rees, investment strategist at Quilter, said.
Asian markets turned red overnight led by steep losses in tech firms. Japan’s Nikkei 225 was down 3.6 per cent to its lowest level since early May before reversing some losses.
Shares in Open AI investor Softbank were down eight per cent while memory chipmaker Kioxia Holdings was down over five per cent.
South Korea’s Kospi was able to scrape into the green in later trading, finishing 0.6 per cent higher after Samsung reversed some early losses to finish just 0.6 per cent lower.
“While we are already seeing plenty of regulatory pushback at the state and local government level which may delay the data centre build-out, federal regulation arguably presents a bigger risk to the AI trade because it could delay the speed of AI adoption too,” Stephen Brown, chief North America economist, said.