Markets
Democrats Won Congress, and AI Stocks Took the Hit
Democrats were projected to win both the House and the Senate in Tuesday's midterms, and Nasdaq-100 futures fell as much as 2.2% overnight. Investors worried about tighter rules for AI data centres.
The result the prediction markets had priced on Monday arrived on Tuesday night, and the market that reacted most was the one nobody had connected to the vote. CBS News projected at 10:15 p.m. Eastern time that Democrats would win control of the House, and shortly after 11:30 p.m. that they had also won the Senate. The Fox News Decision Desk and, according to CNBC, the Associated Press made the same projections. By the early hours of Wednesday Democrats had flipped Senate seats in North Carolina, South Carolina, Texas, Ohio, Kansas, Iowa and Maine, where Troy Jackson unseated Susan Collins; Michigan was still uncalled, with CBS estimating that Abdul El-Sayed was likely to win.
Futures turned lower as the calls came in. Fox Business reported S&P 500 futures down 1.3%, Nasdaq-100 futures down 2.2% and Dow futures down 0.8% at 11:57 p.m.; by 12:38 a.m. CNBC had both S&P 500 and Nasdaq-100 futures down about 0.6% and Dow futures 161 points lower, off their lows. Earlier in the evening, before the first calls, the same contracts had been slightly higher. On the regular session the S&P 500 had risen 0.36% to 7,568.92, ending a three-day losing streak, and the Nasdaq Composite 0.83% to 25,372.01 as chip stocks rebounded.
The reason for the selling was specific. Investors fear that Democratic control could bring nationwide restrictions on data-centre projects, CNBC reported, and Democratic candidates for governor had campaigned on the issue: Gina Hinojosa has pledged a data-centre moratorium in Texas. "What does that mean for the data center buildout," asked Anthony Saglimbene of Ameriprise. Overnight, SpaceX fell more than 6%, Trump Media more than 7%, Tesla more than 4% and CoreWeave 4%, while the Invesco Solar ETF, up 3% in the regular session, added another 1.3% after hours on bets that a Democratic Congress could reverse policies against the industry.
Bonds read the night differently. The 10-year Treasury yield fell about 5 basis points to 4.90% and the 2-year about 6 to 4.55%, and the dollar index slipped 0.32%, according to Fox Business. Lower yields are partly a growth trade and partly a fiscal one: a Congress controlled by the other party makes another large tax package less likely. President Trump struck a conciliatory note, telling the Wall Street Journal, "I think we'll work with the Democrats, and we'll get along very well with them."
History argues against reading too much into one night. Ned Davis Research found that the S&P 500 rose through year-end in five of eight midterm cycles since 1930 in which the president's party lost the House, and divided government has often been a calm backdrop because it limits legislative surprises. The difference this time is that the market's leaders are exactly the companies that new oversight would target. Wednesday's open will show whether investors treat that as a rule change or as a headline; the October jobs report on Friday will matter more for the Fed.