Global stocks rally, dollar dips after Democrats’ midterm sweep
Polls show Democratic voters favour tighter AI regulation, while investors expect greater scrutiny of the sector under a Democratic-controlled Congress.
Global stocks and the dollar rebounded Wednesday following Democrats' victory in the US midterm elections, which has raised concerns about potential regulatory scrutiny on the rapidly growing AI sector. Democrats achieved a sweeping triumph in Republican strongholds for the first time in generations, marking a political shift that surprised many investors.
Deborah Cunningham, chief investment officer at Federated Hermes, noted that the blue wave may result in a divided government more likely to create legislative roadblocks, a scenario traditionally viewed favorably by broad financial markets.
Asian AI stocks initially drove the decline in equity markets, while bonds and safe-haven currencies like the Swiss franc rose. By morning, MSCI's All-World index and Europe's STOXX 600 had turned higher. US stock futures also edged into the positive, rebounding from a 2% drop overnight. Despite the impact, investors are expected to transition from reacting to election uncertainty to assessing the implications of actual policy changes.
XTB research director Kathleen Brooks stated that this outcome is unfavorable for Tesla and SpaceX, but semiconductor stocks, which drive the AI trade, may continue their rally following Tuesday's sector-wide surge.
The AI boom has significantly boosted global markets in recent years, driven by heavy spending from tech companies building data centers and expanding computing capacity. Investors are particularly sensitive to factors that could disrupt the technology's expansion. The election outcome could also impact the US fiscal outlook, as well as sectors such as defense, healthcare, and banking.
Small-cap Russell 2000 futures were up 0.7%, having fallen 1% earlier. Investors are flocking to safe havens, and the yield on the benchmark US 10-year Treasury note dropped 3 basis points to 4.92%, as markets anticipate gridlock in Washington to reduce government spending and potentially slow rate hikes. The dollar weakened broadly, with the euro up 0.4% and the pound 0.5% against the US dollar.
The Swiss franc was the strongest performer, with the dollar down 0.6% against it at 0.8163 francs. Brent crude prices were down 0.4% to US$103.17 a barrel.
Written by urgent.news from Free Malaysia Today's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
