Wall Street rallies as Democrats win control of Congress, boosting stocks

U.S. stock indexes rose sharply on Wednesday following the midterm election results that gave Democrats a commanding majority in Congress. The Dow Jones Industrial Average gained 1,240 points, or 2.4%, marking its best session since April, while the S&P 500 and Nasdaq Composite each climbed 1.4%.

Futures that had slipped after the polls reversed course and moved higher overnight, reflecting investor confidence in the clearer policy outlook. The VIX volatility index dropped 16%, and U.S. Treasury yields fell as bond prices rose on expectations that a divided government will limit excessive fiscal spending.

"The combination of a large Democratic majority in Congress and President Trump’s statement that he is willing to work with the opposition should act as a break on extreme policy outcomes and bring down risk premia," said George Saravelos, global head of FX research at Deutsche Bank.

Deutsche Bank analysts added that a divided government typically makes it harder to pass fiscal stimulus, easing concerns about the fiscal trajectory. Charu Chanana, chief investment strategist at Saxo, noted that the results could constrain President Trump’s legislative agenda on taxes, stimulus and spending, while acknowledging that the president retains veto power.

The election outcome also raised questions for the AI data-center sector, which has driven recent market gains. Shares of semiconductor firms and AI-infrastructure stocks fell, with Nvidia down 2% and an AI-focused ETF dropping 10%. Analysts warned that Democratic wins in states such as Texas could lead to stricter regulations on data-center construction.

"While a blue wave could spark volatility in certain sectors, such as tech and AI, given growing public opposition to the buildout of data centres, we believe markets can grind higher regardless of the outcome as investors applaud falling uncertainty," wrote Justin Buell, chief investment officer at Continuity Group.

Tesla and SpaceX each slipped about 4% after the Texas gubernatorial and Senate races, reflecting uncertainty about their relationship with the state. CVS Health fell 12% after announcing a split into two separate companies.