Wall Street Rebounds After Overnight Selloff as Democrats Sweep Congress
Wall Street swung sharply on Wednesday morning, plunging overnight and then rallying after Democrats took control of both the Senate and the House of Representatives in the midterm elections. Stock index futures fell steeply as results came in, then recovered, and stocks rose once the regular session opened. As of 10:57 a.m. Eastern time, the Dow Jones Industrial Average was up 2.62 percent at 53,143.28, the S&P 500 was up 1.54 percent at 7,685.27 and the Nasdaq Composite was up 1.76 percent at 25,818.96. Those were intraday levels, not closing levels.
Tuesday’s close, on Election Day itself, was mixed. The S&P 500 rose 0.4 percent to 7,568.92, ending a three-day losing streak, and the Nasdaq Composite gained 0.8 percent to 25,372.01, while the Dow fell 0.4 percent to 51,786.72, dragged down by Apple after its earnings report.
The overnight move was sharp. As results rolled in, Nasdaq-100 futures fell as much as 2.4 percent and S&P 500 futures dropped 1.4 percent. Index futures are contracts that trade before the regular session opens, and they showed how investors were feeling overnight. Fears that a sweeping Democratic victory could bring tighter regulation of artificial intelligence and data centers drove the selling. According to Reuters, futures recovered their losses after President Donald Trump accepted the election results and acknowledged that the war in Iran played a role in the Republican losses.
The morning rebound rested on the structure of divided government. Democrats control Congress, but they cannot pass laws on their own. The Senate filibuster, the rule that lets a minority block a bill through extended debate, remains in place, and the president holds veto power. Neither side can push through what it wants unchecked. George Saravelos, global head of foreign exchange research at Deutsche Bank, wrote that the combination of a large Democratic majority in Congress and 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 premiums. Stephen Brown of Capital Economics said the size of the Democratic gains does not change much for the near-term policy outlook, given that the party still lacks a filibuster-proof majority in the Senate and Trump has veto power to block legislation.
Sector moves showed a clear split. Artificial intelligence stocks came under pressure overnight. According to Morningstar, shares of Tesla and SpaceX fell 3 percent, while neocloud companies CoreWeave and Nebius and cloud computing stock Iren were down around 1 percent, and Intel and Oracle shares were also lower. By the morning session the mood had shifted, with Amazon up 6.3 percent and Meta Platforms and Alphabet trading higher. Within the S&P 500, consumer discretionary led the sectors with a 4.34 percent gain, while energy fell furthest, down 4.45 percent.
Other assets moved as well. Defense stocks slid on expectations of greater congressional scrutiny of the Iran war. United States Treasurys rallied, sending yields lower, as a more divided government looked set to hamper fiscal stimulus. The dollar fell 0.5 percent to its lowest point in over a month. Oil prices fell after the results, with investors optimistic that Trump might rein in his foreign policy decisions after the election.
Whether the rally lasts is something strategists are treating with care. Kurt Reiman, the UBS strategist who leads the bank’s midterm analysis, said a bigger-than-expected Democratic win could deliver short-lived weakness for stocks, but that volatility would likely subside and markets would get back to fundamentals, which are the economy, monetary policy, fiscal policy, the direction of inflation and especially earnings. Nathan Dean, a senior government analyst at Bloomberg Intelligence, said he could see investors initially reacting to the scale of the win and then calming down. Before the election, JPMorgan’s scenarios put a Democratic sweep of both chambers at a 0.25 percent dip to a 0.50 percent gain for the S&P 500.
History suggests elections themselves have often been good for stocks. Morningstar examined 100 years of United States stock returns and found that stocks have done better in November in election years than in non-election years. In the average election-year November, stocks have risen by 2.4 percent, compared with 0.9 percent in the average non-election-year November. The end of uncertainty is generally welcomed by markets, said Dan Lefkovitz, a strategist for Morningstar Indexes.
What decides the market’s direction from here is separate from the election. The October jobs report arrives Friday, November 6, the October consumer price index arrives November 10, and the Federal Reserve’s December meeting follows. The policy priorities Democratic leaders set out in the coming weeks will also matter. The new Congress is sworn in on January 3, 2027, so no laws change immediately.
One day’s trading does not set a trend. A plunge overnight followed by a sharp rally in the morning is itself evidence that the market was reacting to headlines. The day’s final closing levels will be set after the 4 p.m. close.