Democrats’ midterm triumph sends US stocks soaring, but Tesla, SpaceX fall

Following the Democrats' decisive victory in the US midterm elections, US stocks experienced a surge on Wednesday, as investors welcomed the prospect of reduced political uncertainty. The S&P 500 began trading at 9.30am local time with a 1.1% increase, the Dow Jones Industrial Average climbed 1.9%, and the Nasdaq Composite surged 1.1%.

However, the market for artificial intelligence (AI) stocks experienced a downturn amid growing expectations that a Democratic-controlled Congress would impose stricter regulations, particularly concerning data center construction. Mathieu Racheter, head of equity strategy research at Swiss private bank Julius Baer, warned that these uncertainties could prompt investors to demand a higher risk premium for US equities, potentially impacting the market in late 2027 or early 2028.

The Democrats' triumph in both the House of Representatives and the Senate grants them the authority to challenge President Donald Trump's policies, scrutinize government spending, and initiate congressional investigations. Prior to the election, analysts had anticipated that a divided government would have a mixed effect on businesses, with AI and information technology companies likely to suffer the most.

Capital market strategist Tim Murray from T. Rowe Price suggested that AI and data centers might face increased bipartisan scrutiny, which could dampen sentiment and delay certain projects without substantial new legislation. Meanwhile, financial institutions might face a fading deregulation advantage as a divided government introduces friction around further policy changes.

Elon Musk's SpaceX witnessed a 5.7% drop in its share price, reaching $133.27, while Tesla experienced a 4.7% decline, settling at $379.80. Musk had previously announced his intention to transform Tesla into an AI-focused company from a hardware-centric business and recently hinted at the possibility of merging Tesla and SpaceX.

Opinion polls indicated that Democratic voters were inclined towards greater control over AI, according to Reuters. Analysts also noted that stocks related to clean energy could potentially benefit from a Democratic-controlled Congress, as existing funding for manufacturers of grids, batteries, and charging infrastructure would receive greater protection despite ongoing challenges from high financing costs.