US stocks opened higher Wednesday morning as Wall Street digested results from the midterm elections and mulled what a Democrat-controlled Congress will mean for President Donald Trump’s fiscal agenda as well as the AI trade.
Stock futures reversed earlier losses and turned higher overnight as investors embraced the certainty offered by the decisive results. Investors also warmed to the prospect of policy gridlock under a divided government, which can curb excess spending and create a more predictable outlook for markets.
The Dow surged 1,045 points, or 2%, shortly after the opening bell. The S&P 500 rose 1.25%, and the tech-heavy Nasdaq Composite gained 1.3%.
“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, global head of FX research at Deutsche Bank, said in a note.
The election results offer some clarity for investors, which can boost the stock market. Expectations that the election outcome could keep a lid on excessive government borrowing and spending also bolstered US government bonds, sending yields lower. The dollar weakened against a basket of major currencies.
“Divided government has generally made it harder for fiscal stimulus to be passed,” Deutsche Bank analysts wrote in a note. “So that’s eased concerns on the fiscal trajectory a bit.”
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It “would significantly constrain Trump’s legislative agenda, particularly on taxes, fiscal stimulus and spending,” said Charu Chanana, chief investment strategist at trading platform Saxo, 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 also trying to discern what key election results could mean for the outlook for data centers, which are the bedrock of the AI trade that has buoyed US markets.
Wall Street analysts had expected a strong performance for Democrats, but the extent of the sweep caught some traders off guard. On Kalshi, odds for Gina Hinojosa to win the Texas governor’s race were pinned at less than 20% for most of the year.
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The proliferation of AI data centers across different states became a critical issue in many campaigns, and Democrat wins in states like Texas raise questions about whether there will be more moratoriums or restrictions that could slow the data center buildout.
“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, chief investment officer at Continuity Group, wrote in a note.
Shares of Elon Musk’s Tesla and SpaceX each fell about 5%. Musk has made Texas the home for his companies, and Democrats’ victories in the gubernatorial and senate races are casting uncertainty over his future relationship with the state.
