(The Epoch Times)—U.S. stocks surged midweek as Wall Street digested the Democratic Party’s decisive midterm victory.
The blue-chip Dow Jones Industrial Average—an index of 30 large publicly traded companies—surged about 1,000 points, or around 2 percent, before the opening bell on Nov. 4.
The broad-market S&P 500 also rose nearly 100 points, or 0.9 percent. Tech stocks were under pressure, with the Nasdaq Composite Index seesawing between positive and negative territory.
Democrats scored majorities in the House of Representatives and the Senate. The blue wave also notched victories in several key gubernatorial races, including Texas.
Investors also welcomed signs that the election outcome would be broadly accepted, helping reduce political uncertainty.
As the results trickled in, President Donald Trump also posted an image of a red hat with “VETO” on the front on his Truth Social.
With the midterms in the rearview mirror and the United States facing a divided government, markets are putting together a post-election rally, said Tom Essaye, president and founder of Sevens Report.
“The net result of that mixed government should be general gridlock, which is positive given the current macroeconomic setup of strong consumer spending, low unemployment, and AI data center spending,” Essaye said in a note emailed to The Epoch Times.
Looking ahead, volatility could return amid next year’s debt-ceiling showdown, Senate investigations, and impeachment threats. But these events won’t have lasting impacts on financial markets, he added.
“Bottom line, since Democrats did not secure a veto-proof majority in either the House or Senate, we now have legislative gridlock, which, historically speaking, is positive for stocks,” Essaye stated.
‘Scrutiny of Tech and AI’
Since 1950, the S&P 500 has had a perfect post-midterm record, rising 12 months after all 19 midterms.
But this track record will face a true test as Democratic lawmakers have expressed skepticism over the artificial intelligence (AI) infrastructure buildout, particularly data centers.
Texas accounts for approximately one-quarter of planned U.S. data center capacity in the coming years. Democrat Gov.-elect Gina Hinojosa, who defeated Republican incumbent Gov. Greg Abbott, has called for a temporary moratorium on data center development.
AI-related spending has been a major driver of the market rally in recent years, and any slowdown in that investment cycle could weigh on investor sentiment.
“We expect greater scrutiny of tech and AI, financial services, healthcare, and parts of the energy sector, with potential implications for compliance costs, investigations, and project timelines, even without new legislation,” John Boyd, principal at economic development consulting firm The Boyd Company, told The Epoch Times.
Safe-Haven Assets
U.S. Treasury bond yields were mostly down as investors moved into safe-haven assets. The benchmark 10-year was slightly above 4.9 percent, while the 30-year sank to around 5.3 percent.
The U.S. Dollar Index—a measure of the greenback against a weighted basket of currencies—slipped 0.6 percent to below 102. The index has slumped over the last month, even as markets price in one more interest rate hike by the Federal Reserve before year-end.
“Investors welcomed the prospect of political gridlock, as Democratic gains reduced expectations for further fiscal expansion,” Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said in an emailed note to The Epoch Times.
Ozkardeskaya said investors welcomed the prospect of political gridlock because it reduced expectations for additional fiscal expansion. She added that although the federal government remains far from closing its budget deficit, closer scrutiny of new spending and unfunded tax cuts could ease some concerns.
Precious metals also rocketed midweek. Gold surged more than 2 percent to above $4,000 per ounce, and silver prices advanced 4 percent to almost $52 an ounce.
Eyes on Data
Financial markets will now focus on data to gauge the economy’s health and weigh in on the Federal Reserve’s next move.
Payroll processor ADP reported on Nov. 4 that private employers added 86,000 new jobs in October. This came in firmly above economists’ expectations of 69,000.
The October nonfarm payrolls report will take center stage later this week. Economists have penciled in 65,000 new jobs and a 4.2 percent unemployment rate.
“The remarkable stability in jobless claims amid the robust 3.4% growth in the economy during the third quarter of the year suggests that conditions are ripe for an increase in demand for labor,” Joseph Brusuelas, chief economist at RSM, said in a Nov. 2 research note.
