US stocks experienced a significant increase on Wednesday as Wall Street processed the decisive victory of the Democrats in the midterm elections and contemplated the implications of a divided government for the ongoing conflict with Iran, President Donald Trump’s policy initiatives, and the developments in the AI sector. The Dow surged 1,569 points, or 3%, marking its most significant increase since April 2025. The Dow also recorded its largest single-day gain following midterm elections since 1982, as per data. The S&P 500 experienced an increase of 1.58%, marking its second-largest single-day gain following midterm elections since 1982, a notable performance that echoes the rise observed after the 2018 midterms. The Nasdaq Composite rose 1.44%, marking its largest one-day gain following midterm elections since 2018. Stock futures initially declined Tuesday nite but subsequently recovered, gaining overnight as investors welcomed the clarity provided by the conclusive election results and Trump’s acceptance of them. The benchmark US stock indexes extended gains on Wednesday, while oil prices experienced a significant decline and bond yields decreased as traders assessed the implications of the ongoing conflict with Iran in light of a newly Democrat-controlled Congress. “The reason we lost is the war,” Vice President JD Vance said in a post on X.
“The president himself said so last night.” Oil prices accelerated declines after the vice president’s comments. Brent crude fell almost 8.7% and settled at $94.62 per barrel, its lowest settle level since August 31. While traders priced in potential de-escalation, other analysts urged caution. “Traders are betting that the administration is going to quit this war because the (midterms) shellacking was bigger than anyone expected,” said Bob McNally. “We’re not buying it. We think escalation is more likely.” Investors expressed a favourable sentiment toward the likelihood of policy gridlock resulting from a divided government, as it has the potential to restrain excessive spending and foster a more stable outlook for markets. The VIX, a gauge of anticipated volatility, declined by nearly 20%. “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,” George Saravelos said in a note. Expectations regarding the election outcome, which may restrain excessive government borrowing and spending, have strengthened US government bonds, resulting in a decline in yields. The dollar experienced a decline in value relative to a collection of significant currencies. “Divided government has generally made it harder for fiscal stimulus to be passed,” analysts wrote in a note. “So, that’s eased concerns on the fiscal trajectory a bit.”
“A Democratic-controlled Congress would significantly constrain Trump’s legislative agenda, particularly on taxes, fiscal stimulus and spending,” Charu Chanana said in a note on Wednesday. “But Democrats would not have a free hand to rewrite policy either, because Trump retains veto power.” Meanwhile, investors are attempting to interpret the implications of key election results for the future of data centers, which serve as the foundation of the AI sector that has supported US markets. Wall Street analysts had anticipated a robust showing for Democrats; however, the magnitude of the sweep surprised certain traders. For the majority of the year, the probability assigned to Gina Hinojosa’s victory in the Texas gubernatorial race on Kalshi remained below 20%. The proliferation of AI data centers across various states has emerged as a pivotal issue in numerous campaigns. The recent victories of Democrats in states such as Texas prompt enquiries regarding the potential for additional moratoriums or restrictions that may impede the expansion of data centers.
While the majority of stocks experienced gains on Wednesday, shares of semiconductor chipmakers and other firms engaged in the data center expansion declined. Nvidia fell 3%, while an exchange-traded fund tracking AI infrastructure stocks dropped 9%. Shares of CoreWeave and Nebius, two neoclouds that rent out compute power for the AI boom, sank roughly 10% and 6.7%, respectively. Shares of Elon Musk’s Tesla and SpaceX fell about 3.3% and 3.9%, respectively. Musk has established Texas as the base for his enterprises, and the Democrats’ successes in the gubernatorial and Senate contests are introducing ambiguity regarding his future interactions with the state. “While a blue wave could spark volatility in certain sectors, such as tech and AI, given growing public opposition to the buildout of data centers, we believe markets can grind higher regardless of the outcome as investors applaud falling uncertainty,” Justin Buell wrote in a note. Elsewhere, shares of CVS Health dropped 12.5% after the healthcare giant announced it would split into two companies.
