One election, two verdicts
What was the impact of the U.S. mid-term election results?
Tuesday's U.S. mid-term elections produced a decisive result, and for markets, decisiveness was the point. Democrats will take control of both the House and the Senate, with at least 54 Senate seats and a House majority well above the 218 needed. The new Congress will sit in January.
Overnight trades dipped Tuesday night as results came in, but then turned higher once the scale of the victory was clear, and U.S. President Trump said he would accept the outcome and was open to working with the new majority. That answered three questions at once: who will control Congress, whether the result would be contested, and what policy will look like for the next two years. A divided government (with one party in control of the presidency and another in control of Congress) usually means fewer large fiscal or regulatory surprises, and markets tend to consider that as a sign of stabilty.
Traders also weighed what a Democrat-run Congress will mean for the war with Iran, and oil fell sharply because of it.
How did markets react immediately after the election?
Wednesday's increase in stock market prices was historic. The Dow Jones (an index of 30 of the largest U.S. companies) jumped by 1,569 points (or 3%), its best day since April 2025 and its best post-mid-term session in 44 years, closing back above 53,000 for the first time since September. The S&P 500 (the index of the largest 500 U.S. companies) rose by 1.6%, its second-best post-mid-term day since 1982. Oil fell by more than 8%, bond yields dropped, and gold rose by about 3%.
Consumer stocks led the charge, as oil collapsed. Apple jumped by more than 6% to a record high. Health care and renewable energy stocks rallied, and international stocks joined in, with developed and emerging market exchange-traded funds (ETFs) up by about 2%. Semiconductor and data-centre stocks lagged, having already been uneasy.
Strategists reached for the oldest line in the book: markets like a divided government. With the price of oil falling on top of it, Wednesday priced the most comfortable version of the next two years.
Why did stocks fall on Thursday?
On Thursday, the reversal was swift and concentrated. Semiconductor and AI infrastructure stocks fell for a second day, with semiconductors down considerably during the session, and Nvidia, Broadcom, Micron and AMD stocks among the hardest hit. The S&P 500 had shed more than $2 trillion in value by mid-morning, the Nasdaq (an index of mostly technology and growth companies) slipped into correction territory (more than 10% below its October record), and the VIX (a stock market volatility index) posted its largest one-day jump in more than two years. Korea's main stock market index, the KOSPI, fell by 5.3%.
The trigger was a political read on AI growth. Traders were worried that a Democrat-led Congress could bring tighter rules on data-centre construction, while weak results from AI technology companies Qualcomm and Arm Holdings added fuel. Note what has actually changed; nothing has been enacted, and the new Congress will not sit until January. The market is pricing in possibilities, not policies.
That fits the pattern we have tracked since October. The number of high-performing stocks has been narrow, carried by a small group of AI companies, while most other stocks lagged. Under the surface, Thursday looked more like a rotation of investment, rather than panic, with roughly two in five S&P 500 stocks rising, and names like Chevron and Johnson & Johnson gaining. When an index leans this hard on one theme, that one theme can take it down. The election removed uncertainty for the broad market and added it to the one sector (AI) that the index can least afford to lose.
What should investors watch out for next?
After a week when markets cheered a divided government on Wednesday and found its first casualty on Thursday, the question is whether this is a short political scare for AI, or the start of a broader repricing of the stocks that have carried the index all year.
Listen to The Living Market podcast from the IG Investment Strategy Team for further insights.
