Wall Street rallies after Democrats win Congress; data centre stocks slide

On November 4, US stocks surged as investors anticipated a divided Washington following Democrats' midterm sweep, which could curb drastic policy shifts. Democrats secured control of both Senate and House of Representatives, marking the first time in generations that they won elections in Republican strongholds due to widespread voter discontent with President Donald Trump.

While large technology stocks benefited from a limited legislative agenda, companies associated with AI infrastructure faced headwinds. "This is a clearing event; the uncertainty linked to the elections is now gone," said Scott Chornert, head of US equity strategy at Citi Research. Among prominent tech firms, Amazon.com rose 7.1%, Meta Platforms increased 1.6%, and Alphabet climbed 3.4%.

The Dow Jones Industrial Average added 1,203.07 points (2.3%) to 52,989.79, the S&P 500 gained 129.88 points (1.72%) to 7,698.80, and the Nasdaq Composite climbed 540.38 points (2.13%) to 25,912.39. The dollar weakened against major currencies, and long-term Treasury yields decreased. Donald Trump recognized the US-Israeli conflict with Iran as a factor in his party's electoral losses.

SpaceX and Tesla, under Elon Musk's leadership, underperformed, sinking 1.9% and 3.9%, respectively, as Musk had contributed nearly half a billion dollars to Republican candidates, including those in Texas to maintain Republican control. Eight of the 11 S&P 500 sectors ended the day higher, with consumer discretionary leading the gains.

The AI sector will be scrutinized post-election, as Democrats' victories in crucial data center states such as Texas and Georgia, where public opposition to industry expansion has intensified, could constrain growth. Citi's Chornert noted the potential "headwinds" in the AI trade due to possible slowdowns in data center construction.

AI-related stocks, including IREN, Hut 8, Applied Digital, and Core Scientific, experienced declines of between 1.2% and 13%. Despite chip stocks lagging, AMD forecasted faster-than-expected growth in 2027, with its data center sales surging. Shares of AMD increased by 4.8%. Defense stocks Northrop Grumman, RTX, and Lockheed Martin experienced significant declines, as Trump's $1.5 trillion budget proposal might encounter greater resistance in Congress.

Clean energy-related firms such as solar companies saw gains, as a Democratic victory might bolster expectations of sustained federal support for clean energy development. The Invesco Solar ETF rose by 8.3%. McDonald's outperformed, gaining 3.9% after surpassing profit expectations, while Block increased by 15% following a raised full-year gross profit outlook.

Advancing issues significantly outnumbered declining ones on both the New York Stock Exchange and Nasdaq, while the S&P 500 reached 42 new 52-week highs and recorded three new lows, whereas the Nasdaq Composite recorded 105 new highs and 54 new lows.