American stocks surged on Wednesday as investors concluded that a Democratic Congress would bring more predictability, not less, to Donald Trump's final two years in office. In early trading the Dow Jones Industrial Average jumped by about 1,200 points, or 2.3 per cent, to 52,990. The S&P 500 rose by 1.7 per cent to 7,699 and the Nasdaq Composite by 2.1 per cent to 25,912.
The rally reversed a nervous night. As results came in, futures on the Nasdaq fell by about 2 per cent and the dollar weakened, as traders priced in tighter scrutiny of Big Tech and artificial intelligence. By the morning the mood had changed, helped by Mr Trump's statement that he was "absolutely willing to accept those results".
The winners
Clean energy led the market. Investors bet that a Democratic Congress would protect federal support for renewables and speed up approvals. Before the opening bell, First Solar rose by 9.4 per cent, Sunrun by 10 per cent and Enphase by 7.6 per cent, according to Reuters; the Invesco Solar ETF gained about 8 per cent in early trading. In Europe, Vestas rose by about 5 per cent and Orsted by about 7 per cent.
Hospitals and health insurers that depend on government programmes also rallied. HCA, the biggest hospital operator, gained about 7 per cent, and Molina and Centene, which manage Medicaid plans, about 5 per cent.
Big Tech recovered its overnight losses. Amazon rose by about 7 per cent and Alphabet by more than 3 per cent; AMD gained about 5 per cent after its quarterly results. Consumer and financial shares joined in: Walmart rose by about 3 per cent and Bank of America by about 2.5 per cent.
The losers
Defence contractors fell the most. Northrop Grumman and Lockheed Martin lost more than 4 per cent, and RTX and L3Harris more than 3 per cent, as investors questioned whether a Democratic Congress would approve the $1.5trn defence budget the administration had been expected to request.
Companies that prospered under Mr Trump's policies also slid. Shares in GEO Group and CoreCivic, private-prison operators that benefited from the immigration crackdown, fell by 6.7 and 5.2 per cent respectively. Trump Media fell by 7 per cent, Tesla by 3.6 per cent and SpaceX by 3.2 per cent. Some AI-infrastructure stocks, including Nvidia, Broadcom and Micron, slipped on fears of congressional investigations into data centres; about half of Americans now oppose new data centres near their homes.
Bonds, oil and the dollar
Government bonds rallied. The ten-year Treasury yield fell by about six basis points towards 4.9 per cent, as investors bet that a divided Congress would block unfunded tax cuts and restrain the deficit. The dollar weakened and gold climbed back above $4,000 an ounce.
Oil fell. West Texas Intermediate dropped by about 3 per cent towards $93 a barrel and Brent to around $102, as traders read the result as a referendum on the war with Iran and saw a better chance of de-escalation. Elsewhere, Europe's Stoxx 600 rose by 1.1 per cent and Britain's FTSE 100 by 0.9 per cent; China's CSI 300 gained 2.3 per cent, while Japan's Nikkei fell 1.4 per cent.
What analysts expect
Most strategists described the result as a reduction in uncertainty. "The election has removed one of those uncertainties," said Morgan Stanley, which kept its year-end target of 8,000 for the S&P 500. Goldman Sachs expects Democrats to press for concessions on selected tariffs, federal spending and the conflict with Iran. Citi warned that AI-infrastructure companies face more regulatory risk. Deutsche Bank noted that the S&P 500 has been higher 12 months after every midterm election since 1946, with an average gain of 14.4 per cent.
The caution is that gridlock cuts both ways. Mr Trump keeps his veto, and his administration can still move markets through tariffs and executive orders. Wells Fargo said earnings, interest rates, energy prices and consumer demand would matter more than the vote itself.
