Global stocks slumped and the dollar hit a one-month low on Wednesday as Democrats gained control of both the Senate and the House in the US midterm elections, fuelling fears that rapid AI sector growth could be hamstrung by regulatory scrutiny.
In a major setback to President Donald Trump, Democrats notched up victories in the South Carolina, Texas and Ohio Senate races, capturing majorities in both the Senate and House that reached deep into Republican strongholds.
READ: This is why Trump will lose the midterms
The breadth of the party’s success was underscored by gains in districts long considered safely conservative, highlighting a political shift that caught many investors off guard.
AI stocks were quick to slide. That in turn put the dollar under pressure, while cryptocurrencies also fell at the prospect of stronger regulations. Bonds, though, found favour as investors sought safer assets.
“Tighter regulatory scrutiny of technology and AI companies along with the higher likelihood of political gridlock beckon with a Democrat sweep,” said Prashant Newnaha, senior rates strategist at TD Securities in Singapore.
The AI boom has helped propel global markets in recent years, driven by heavy spending from tech giants racing to build data centres and expand computing capacity. That has left investors acutely sensitive to anything that could derail the technology’s rapid expansion.
The election outcome could also hold broad implications for the US fiscal outlook as well as sectors such as defence, healthcare and banking.
S&P 500 futures were last down 0.35% while Nasdaq futures skidded more than 2% before cutting losses to trade down 0.5%. European futures were down 0.4%, having slid 1.5% earlier.
“Looks like investors are buying the dip after the initial knee-jerk selloff,” said Charu Chanana, chief investment strategist at Saxo. “The blue sweep hasn’t changed, but markets may be recognising that political gridlock doesn’t necessarily mean weaker corporate earnings.”
In Asia, the bulk of selling was in AI stocks, with chipmakers Samsung, SK Hynix and TSMC sliding sharply before cutting losses. The KOSPI was last slightly higher after dropping 3% earlier.
READ: Some lessons for traditional SA media to learn from the US election
George Efstathopoulos, portfolio manager and co-head of multi-asset research at Fidelity International, said he had reduced overall equity exposure and dialled up exposure in defensive sectors like utilities, but thinks now is a good time to gradually rotate back into tech.
“The midterms are a clearing event that can allow investors to focus on sectors where fundamentals and pricing have diverged. Technology is one of them.”
INVESTORS RUSH FOR SAFETY OF BONDS
Treasuries rallied as investors expect gridlock in Washington to cut government spending. AI regulation could also slow growth and reduce the need for rate hikes.
The yield on the benchmark US 10-year Treasury note fell 6 basis points to 4.906%, pushing the dollar sharply lower. [FRX/] [US/]
“Bonds are coming out as the clear winner as markets put the AI trade on the chopping block and embrace the higher possibility that further tax cuts are put on ice and government spending slows,” said TD Securities’ Newnaha.
Kim Seok-hwan, an analyst at Mirae Asset Securities, said the Democrats’ victory in Texas is likely to weigh on chip stocks, raising fears of tighter curbs on AI data-centre development in one of the fastest-growing markets for computing infrastructure in the US.
“If Texas declares a moratorium on data centres, as New York did, projects could face further delays,” Kim said. “Today’s market reaction is clearly reflecting concerns and uncertainty over these issues.”
In currencies, the dollar slid broadly against major peers. The euro rose 0.5% to $1.1249, while sterling firmed 0.37% to $1.3464. That left the dollar index 0.37% lower at 101.34. [FRX/]
The yen and the Swiss franc — both safe-haven currencies — notched up the biggest gains. The yen was 0.7% stronger at 157.55 per US dollar, while the Swiss franc firmed almost 0.8% to 0.8144 per US dollar.
In the oil market, prices were choppy on Wednesday after sliding to a four-week low in the previous session as investors weighed talks to end the wars in Ukraine and Iran against worries that recent attacks in both conflicts could further disrupt supplies.
- Democrats gained control of both the US Senate and House in the midterm elections, winning key races in South Carolina, Texas, and Ohio.
- Global stocks, particularly AI-related shares, fell sharply due to fears of increased regulatory scrutiny on the AI sector following the Democratic wins.
- The US dollar dropped to a one-month low, while safe-haven assets like bonds, the Japanese yen, and the Swiss franc gained in value.
- US 10-year Treasury yields fell 6 basis points to 4.906% as investors anticipated potential government spending cuts and slowed rate hikes.
- Oil prices were volatile after hitting a four-week low amid mixed signals from conflict-related developments in Ukraine and Iran.
Global stocks slumped and the dollar hit a one-month low on Wednesday as Democrats gained control of both the Senate and the House in the US midterm elections, fuelling fears that rapid AI sector growth could be hamstrung by regulatory scrutiny.
In a major setback to President Donald Trump, Democrats notched up victories in the South Carolina, Texas and Ohio Senate races, capturing majorities in both the Senate and House that reached deep into Republican strongholds.
READ: This is why Trump will lose the midterms
The breadth of the party's success was underscored by gains in districts long considered safely conservative, highlighting a political shift that caught many investors off guard.
AI stocks were quick to slide. That in turn put the dollar under pressure, while cryptocurrencies also fell at the prospect of stronger regulations. Bonds, though, found favour as investors sought safer assets.
"Tighter regulatory scrutiny of technology and AI companies along with the higher likelihood of political gridlock beckon with a Democrat sweep," said Prashant Newnaha, senior rates strategist at TD Securities in Singapore.
The AI boom has helped propel global markets in recent years, driven by heavy spending from tech giants racing to build data centres and expand computing capacity. That has left investors acutely sensitive to anything that could derail the technology's rapid expansion.
The election outcome could also hold broad implications for the US fiscal outlook as well as sectors such as defence, healthcare and banking.
S&P 500 futures were last down 0.35% while Nasdaq futures skidded more than 2% before cutting losses to trade down 0.5%. European futures were down 0.4%, having slid 1.5% earlier.
"Looks like investors are buying the dip after the initial knee-jerk selloff," said Charu Chanana, chief investment strategist at Saxo. "The blue sweep hasn't changed, but markets may be recognising that political gridlock doesn't necessarily mean weaker corporate earnings."
In Asia, the bulk of selling was in AI stocks, with chipmakers Samsung, SK Hynix and TSMC sliding sharply before cutting losses. The KOSPI was last slightly higher after dropping 3% earlier.
READ: Some lessons for traditional SA media to learn from the US election
George Efstathopoulos, portfolio manager and co-head of multi-asset research at Fidelity International, said he had reduced overall equity exposure and dialled up exposure in defensive sectors like utilities, but thinks now is a good time to gradually rotate back into tech.
"The midterms are a clearing event that can allow investors to focus on sectors where fundamentals and pricing have diverged. Technology is one of them."
Treasuries rallied as investors expect gridlock in Washington to cut government spending. AI regulation could also slow growth and reduce the need for rate hikes.
The yield on the benchmark US 10-year Treasury note fell 6 basis points to 4.906%, pushing the dollar sharply lower. [FRX/] [US/]
"Bonds are coming out as the clear winner as markets put the AI trade on the chopping block and embrace the higher possibility that further tax cuts are put on ice and government spending slows," said TD Securities' Newnaha.
Kim Seok-hwan, an analyst at Mirae Asset Securities, said the Democrats' victory in Texas is likely to weigh on chip stocks, raising fears of tighter curbs on AI data-centre development in one of the fastest-growing markets for computing infrastructure in the US.
"If Texas declares a moratorium on data centres, as New York did, projects could face further delays," Kim said. "Today's market reaction is clearly reflecting concerns and uncertainty over these issues."
In currencies, the dollar slid broadly against major peers. The euro rose 0.5% to $1.1249, while sterling firmed 0.37% to $1.3464. That left the dollar index 0.37% lower at 101.34. [FRX/]
The yen and the Swiss franc — both safe-haven currencies — notched up the biggest gains. The yen was 0.7% stronger at 157.55 per US dollar, while the Swiss franc firmed almost 0.8% to 0.8144 per US dollar.
In the oil market, prices were choppy on Wednesday after sliding to a four-week low in the previous session as investors weighed talks to end the wars in Ukraine and Iran against worries that recent attacks in both conflicts could further disrupt supplies.
