S&P 500 — US Large Cap Index
FTSE 100 — UK Blue Chips
Euro Stoxx 50 — Eurozone Leaders
DAX 40 — German Equities
CAC 40 — French Market Index
Nikkei 225 — Japan Benchmark
Hang Seng — Hong Kong Index
Shanghai Composite — China Mainland
ASX 200 — Australian Market
TSX Composite — Canada Index
Nifty 50 — India Large Cap
STI Index — Singapore Market
KOSPI — South Korea Index
Bovespa — Brazil Equities
JSE Top 40 — South Africa Index
IPC Index — Mexico Market
ey takeaways
- Democrats have won control of Congress in the midterm elections.
- Washington political gridlock traditionally creates strong rallies for US stock indices.
- Tesla and SpaceX shares fell in pre-market trading amid increased regulatory scrutiny risks.
- Nvidia and AMD shares rose on strong semiconductor demand and corporate earnings.
A blue wave hits the US, and knocks out SpaceX Democrats have won Congress, as the polls predicted. US voters turned their backs on the Republicans and the President has congratulated the Democrats on their win. This is being felt across markets. The dollar is weak across the board, futures on Treasury yields are pointing lower and stock index futures suggest there will be mild losses for European and US indices later today. Political gridlock: bad for politics, but good for markets On the index level, the stock market reaction is minimal so far.
The result will mean gridlock in Washington for the next two years, as the President is likely to veto many of the measures put forward by the Democrats. Gridlock might be bad for politics, but it is good for markets, and traditionally US indices experience a strong rally after midterm elections. After the recent rout in stocks, especially AI linked stocks, the stage could be set for a strong performance into year end.
Democrat revenge weighs heavily on SpaceX and Tesla However, some individual names are nursing significant losses today. SpaceX is down 5% in the premarket, and Tesla is lower by more than 4%. Elon musk is considered an anathema to most Democrats and their successful bid to take control of Congress effects Musk’s companies in two ways. Firstly, AI companies may face greater scrutiny and regulation under a Democrat controlled Congress, and secondly, it puts into doubt a potential merger between SpaceX and Tesla. While Congress cannot stop a merger between SpaceX and Tesla, they could slow it down via extra scrutiny. Musk could push back on this, and rush through a merger in the next 18 months before Trump leaves office.
However, there is now a political risk premium attached to both Tesla and SpaceX that could weigh on their share prices, after both stocks have rallied more than 20% in the past 3 months. Musk had poured hundreds of millions into the Republican Party ahead of these elections, Tesla has been sensitive to politics in the past. The stock experienced a strong rally after President Trump won in 2024, and we could see stocks linked to Musk struggle now that his political enemies have won back control of Congress. Why investors will ignore politics While this is a big win for the Democrats, the fact states that voted enthusiastically for the President just two years ago have switched political allegiances shows you how quickly the balance of power can change in Washington.
The blue wave this evening does not mean that the Democrats will win the White House in 2 years time. This is why we think that investors will ignore politics for the next couple of years. AI firms turn on the charm for Democrats to save their share prices Tech is considered under threat from the Democrats now they control Congress. However, we do not think this will dramatically alter the trajectory of AI stocks. AI powerhouses like Nvidia have reportedly hired Democrat political advisors to boost their future influence in Washington. Just as voters are fickle, so are AI companies. While it is hard to see Musk bending the knee to Democrats, other tech execs may have less qualms in doing so.
Interestingly, Nvidia’s share price is higher by 0.5% in the pre-market and is bucking the trend for lower stocks on Thursday. The boost for Nvidia comes after strong results for AMD, which suggests that demand for semiconductors to power the AI build out is strong. AMD’s share price is higher by 7% in overnight trading. This is a sign that corporate news will trump the Midterm results later today. Overall, these results have had a mild impact on markets so far. Investors will move on from trading the uncertainty of the election results to trading the reality of what they mean for policy. This is bad news for Tesla and SpaceX on Wednesday, but the semiconductor names, the backbone of the AI trade, could brush off concerns about AI regulation and continue to move higher after Tuesday’s stunning rally for the sector.
Chart 1: SpaceX under threat from Democrats
Source: XTB
