Wall Street wobbles, then recovers after Democratic sweep
Analysts see gridlock, not policy U-turn, as AI shares slip and business' wait for clarity
Dubai: US stock futures lurched lower, then recovered on Wednesday after Democrats won control of both chambers of Congress. Markets were quick to react, with the Nasdaq taking a hit initially with AI and tech stocks breaking the brunt of the outcome.
Nasdaq 100 futures dropped as much as 2.4 per cent and S&P 500 futures fell 1.4 per cent in early trade. Both pared the losses as investors bought the dip, turning all 3 indices back in the green. President Donald Trump said he would accept the results, helping ease the uncertainty among traders and investors.
The 10-year Treasury yield eased to about 4.9 per cent after topping 5.3 per cent a day earlier, a 24-year high. The dollar slid to a one-month low. Asian markets took the heavier blow as votes were still being counted during trading hours. Japan’s Nikkei fell almost 3 per cent, and SoftBank plunged 8 per cent. European markets also pointed lower before the open and quickly bounced back.
Reaction priced in, but valuations at risk
David Meier, economist at Julius Baer reacted to the fall in the dollar index. He expects only modest softness, because tighter monetary policy and AI investment still support the currency.
“Some US dollar softness is nevertheless plausible. Markets anticipate greater regulatory scrutiny of the artificial intelligence (AI) sector, potentially weighing on AI capex and associated capital inflows, an important source of US dollar support this year. Beyond these sector-specific considerations, the election outcome may also reinforce a modest ‘gridlock premium’, he added.
Mathieu Racheter, head of equity strategy research at Julius Baer, says the sweep was partly priced in. He notes that Trump’s veto limits legislation that could change near-term earnings. The bigger risk is valuations.
Uncertainty over future taxes and regulation could push investors to demand a higher premium for US equities. “We expect this uncertainty to become more prominent in late 2027 or early 2028, when the presidential campaign brings the prospect of a broader policy shift into focus.”
He bets on a more diversified portfolio allocation to steer off risks. "While US politics will continue to influence markets globally, rising domestic policy uncertainty strengthens the case for international diversification through a broader mix of earnings drivers, valuations, and sector exposures," he notes.
Constrained politics, same Fed
Frank Walbaum, market analyst at Naga.com, reads the result as a more constrained political environment over the next two years. He says voter dissatisfaction with the administration’s economic and foreign-policy record played a part. Higher fuel prices tied to Middle East tensions squeezed household budgets and weighed on consumer sentiment.
“Democratic control of both chambers could constrain the administration’s fiscal agenda, making additional tax cuts and spending initiatives harder to pass. The deficit is already large, with the FY2026 shortfall reaching nearly USD 2 trillion, the third-largest on record. Tighter limits on fiscal expansion could reduce expectations for additional government borrowing and ease concerns over Treasury supply,” he added.
On technology, Walbaum expects pressure on companies tied to data centre expansion, since a Democratic Congress could examine AI development and energy use more closely. Healthcare could gain if Democrats restore Medicaid funding and Affordable Care Act subsidies, though that needs White House agreement.
Businesses sound caution, not retreat
Louis Guy Detata, founder of UEXO.com, an online trading platform, says a divided government may restrain one-sided policy moves but raises the risk of investigations and legislative standoffs. Major legal changes are unlikely soon, Detata argues, because the president keeps his veto and Democrats lack the numbers to override it. Tariffs and many regulatory procedures remain in executive hands. Investment and hiring plans will lean toward caution.
So are businesses going to adjust their supply chain, pricing or expansion plans? Detata argues that the outcome reinforces the importance of maintaining flexibility and avoiding excessive dependence on any single market. “Currently, there is no warranty for any immediate, large-scale adjustments. Developments around tariffs, trade restrictions, and regulatory requirements will remain at the center of attention in the business community.”
Detata says the US-Gulf relationship remains strong, built on commercial, financial and strategic ties. Both sides want to keep investment flowing in technology, AI, infrastructure, defence, healthcare and energy. "For Gulf investors, the US will remain an important destination for capital, although regulatory clarity and geopolitical considerations will continue to influence investment decisions," he adds.
The one decision that would help most, he says, is long-term clarity on trade policy and geopolitics.
