Financial markets did a U-turn on Wednesday. As results from America’s midterm elections rolled in during Asian trading hours, global stocks slumped, AI shares tumbled and the dollar slid on fears that a Democratic sweep of Congress could disrupt the data-center buildout powering the AI trade. Hours later, much of the damage had reversed — after President Donald Trump said he would accept the results and acknowledged the war in Iran had hurt his party.
The early sell-off
The first reaction was a rush for safety. S&P 500 futures slid 0.6% and Nasdaq futures fell more than 2% before paring losses, Reuters reported. The yield on the benchmark 10-year Treasury note fell 6 basis points to 4.906%, and the dollar dropped sharply, with the euro rising 0.5% to $1.1249 and sterling firming 0.37% to $1.3464.
Asia felt it first. South Korea’s KOSPI slid 1.6%, Japan’s Nikkei fell 3% after returning from a holiday, and chipmakers Samsung, SK Hynix and TSMC slid sharply. European futures were down 1.4%. Cryptocurrencies fell on the prospect of stronger regulation, while bonds found favor as investors sought safety.
The fear, analysts said, was twofold: tighter regulatory scrutiny of technology and AI companies, and political gridlock that could freeze further tax cuts. “Tighter regulatory scrutiny of technology and AI companies along with the higher likelihood of political gridlock beckon with a Democrat sweep,” Prashant Newnaha, senior rates strategist at TD Securities in Singapore, told Reuters.
The reversal
Then the mood flipped. US stock futures clawed back their losses after Trump accepted the election outcome, Reuters reported. By 4:22 a.m. Eastern Time, Dow e-minis were up 436 points, or 0.84%; S&P 500 e-minis were up 26.75 points, or 0.35%; and Nasdaq-100 e-minis were up 44.75 points, or 0.16%. European shares turned higher too, with Germany’s DAX and France’s CAC each up around 0.4% and London’s FTSE up 0.2%. Asian shares reversed heavy losses of as much as 4% to turn higher.
“We are in the best possible outcome for markets,” Nannette Hechler-Fayd’herbe, head of investment strategy at Lombard Odier, said — arguing the initial reaction was a knee-jerk response, and that a balance of power between Congress and the president would keep both parties in check. “I don’t think the big risk to markets is from the blue wave; it’s investors overreacting to a blue wave,” Michael Arone, chief investment strategist at State Street Global Advisors, added.
The losers and winners
Not everything recovered. Defense stocks fell in premarket trading — RTX, Lockheed Martin, Northrop Grumman and Palantir — on concern that Democratic control of Congress could hold up spending; in London, BAE Systems slumped 5% and Babcock fell more than 3%. Shares in Elon Musk’s Tesla and SpaceX fell around 5% premarket. Clean-energy names that had been hit by Trump’s policies were gainers, and gold rallied while Brent crude nudged 0.4% higher to about $104.10 a barrel.
The context matters: the AI trade was already wobbling before election night. The Goldman Sachs broad AI basket was down 15% in October and more than 24% from its peak, Natixis chief US economist Christopher Hodge noted. “A Democratic sweep of Congress would put pressure on tech and potentially bring regulatory pressure on everything AI,” he said.
What to watch next
Investors will now watch the final results trickle in and listen for the new Democratic majority’s policy priorities — on AI regulation, data centers, taxes and defense spending. History offers one reassurance: based on S&P 500 annual returns from 1953 to 2026, divided government has historically delivered stronger equity returns than single-party control, averaging 14.3% against 9.6%, according to Investors’ Chronicle. The whiplash of Wednesday morning may turn out to be the market pricing in gridlock — and deciding it can live with it.
Sources: Reuters, “Stocks wilt, dollar slides as blue sweep jolts AI bets” (Nov 4, 2026); Reuters via Kitco, “US stock futures rise as investors assess Democrats’ midterm sweep” (Nov 4, 2026); Dow Jones via TradingView, “Stock Futures Turn Higher, Treasurys Strengthen After Democratic Sweep” (Nov 4, 2026); Investors’ Chronicle, “US election results send shares higher” (Nov 4, 2026).
