Markets react to Democratic victory

Democrats secured a sweeping victory in the US midterm elections, winning control of both the House of Representatives and the Senate. Stock futures initially fell as investors absorbed the results, but sentiment quickly changed as investors began to focus on the potential implications of the election result. Although the full implications remain uncertain, a Democratic-controlled Congress could increase pressure to scale back policies that add to inflation, such as tariffs. The current narrative on the lingering Iran war may also change. Investors also seem to welcome the fact that uncertainty surrounding the election outcome has faded and increasingly view political gridlock as a stabilising force rather than a problem.

The election result had different implications across sectors. Semiconductor and AI hardware stocks came under pressure. Investors worried that the Democratic victory could increase the likelihood of tighter restrictions of new data centres. This pressure on share prices came despite another round of strong earnings reports from companies benefitting from the strong AI buildout. By contrast, companies that already own data centre capacity performed well.

The pressure on AI-related stocks intensified sharply on Thursday. The main driver was similar to what had already weighed on parts of the market on Wednesday: growing concerns that the Democratic victory could lead to tighter rules for the AI industry. The technology-heavy Nasdaq 100 fell more than 6%, while the S&P 500 dropped over 4%. Semiconductor designers and manufacturers, chip-equipment companies and other businesses linked to AI infrastructure were among the hardest hit. Many of these stocks had performed strongly earlier this year.

We look more closely at what drove the sell-off in our market comment: Democratic victory puts the AI trade under pressure.

The energy sector also came under pressure. Investors interpreted the election result as increasing pressure on the administration to de-escalate the Iran conflict, particularly given voters' concerns about gasoline prices and inflation. Consumer-focused segments performed well. The healthcare sector also performed strongly as concerns about further cuts to Medicare and Medicaid reimbursement rates eased. In addition, investors expect healthcare affordability to become a more important policy theme under the new Congress. For more on the implications of the election result, read our market comment: Democratic sweep changes Washington more than Wall Street.

Alongside the political developments, companies continued to report earnings at a rapid pace.

In the technology sector, Apple was one of the most closely watched companies reporting earnings this week. The company delivered a relatively strong final quarter of its fiscal year, with revenue exceeding expectations. Strong growth in iPhone and Mac sales helped drive the performance, although revenue in China and services growth was somewhat disappointing. Looking ahead, Apple provided a strong revenue outlook. However, its gross margin guidance fell slightly short of expectations, partly due to higher chip costs and continued investment in its AI assistant.

AMD also reported solid results. Data centre revenue was particularly strong, while earnings also continued to improve. In addition, AMD provided a strong financial outlook for the final quarter of the year and gave some encouraging signals for 2027. Despite the good results, negative sentiment towards AI-related stocks was the main driver of AMD’s share price performance.

In healthcare, Novo Nordisk reported strong results. The Danish company delivered revenue and earnings above expectations. At the start of the year, Novo Nordisk expected both revenue and earnings to decline. However, as results have improved, the company has raised its full-year outlook again. In particular, third-quarter sales of the Wegovy pill were strong.

Rheinmetall's share price fell on Thursday despite the company reporting solid operational results, as investors focused instead on the weaker outlook. Management now expects 2026 sales of EUR 13.2 billion versus EUR 13.7-14.2 billion previously, and lowered its profit margin to 18.5%. Delays in incoming orders and weak cash flow overshadowed an otherwise strong order book.