NEW YORK — U.S. stocks rallied sharply Wednesday, with the Dow Jones Industrial Average jumping more than 1,000 points, as investors bet that Democratic control of Congress would produce a divided government and less risk of sweeping policy changes in Washington.
The gains were broad but uneven. Shares tied to President Donald Trump, Elon Musk and the artificial intelligence boom fell, while bonds, gold and many consumer and media stocks rose as traders sorted out likely winners and losers from Tuesday’s midterm results.
The S&P 500 jumped 1.2% in early trading and was potentially on track for its best day in six weeks, while the Dow was up 1,178 points, or 2.3%, as of 9:35 a.m. Eastern time and the Nasdaq composite was 1.1% higher. By about 10 a.m., CNBC reported the Dow up 1,131 points, or 2.2%, the S&P 500 up 1.6% and the Nasdaq up 2%.
Overnight reversal
The rally followed a volatile night. Stock futures reversed earlier losses before Wednesday’s open, with Nasdaq 100, S&P 500 and Dow futures up 0.89%, 0.90% and 1.28%, respectively, as of 5:25 a.m. Eastern.
Stocks had ended Tuesday’s regular session mixed. The Nasdaq rose 0.83% and the S&P 500 gained 0.36% to snap a three-day losing streak, while the Dow fell 0.38%, weighed down by Apple shares after the company’s latest results.
Why investors like gridlock
Analysts said markets tend to welcome split control in Washington. Investors generally prefer power to be divided between Republicans and Democrats because it is seen as lowering the risk of sweeping policy changes that could upend the economy.
“Still more uncertainty looms, but one thing is certain, there will be gridlock and historically this is good for the market,” Jay Woods, chief market strategist at Freedom Capital Markets, told CNBC. Woods said the rally also partly reflected Trump’s initial tone after he told The New York Times he would accept the election results.
Analysts noted the limits of the new majority. Stephen Brown of Capital Economics said the size of Democratic gains does not change much for the near-term policy outlook, since the party lacks a filibuster-proof Senate majority and Trump retains veto power.
Saxo’s Charu Chanana said a Democratic Congress “would significantly constrain Trump’s legislative agenda,” particularly on taxes, fiscal stimulus and spending, though Democrats would not have a free hand to rewrite policy either.
Uncertainty remains over how the president will respond. Carsten Brzeski, global chief of macro at ING Bank, said a downbeat scenario is that Trump becomes “an angry duck” who restarts tensions over tariffs and allies’ military spending, while an optimistic view is that he becomes “a tame duck” focused on ending wars without major disruption.
Trump-linked stocks fall
Companies closely associated with the president were among the biggest losers. Trump Media & Technology Group dropped 9.1% and had already entered the day down 55.1% for the year as Trump’s approval ratings weakened. Trump owns 41% of the company, which operates the Truth Social platform.
Musk’s companies also slid. Tesla fell 5.2% and SpaceX sank 4.8%, with Musk, a former top Trump adviser, among the possible targets of investigations by a Democratic-controlled Congress. CNN noted that Musk has made Texas home to his companies, and Democratic wins in the state’s governor and Senate races are casting uncertainty over his relationship with the state.
Defense contractors and private prison operators also tumbled in premarket trading, according to Benzinga.
AI trade under pressure
Artificial intelligence stocks, which have powered much of the market’s gains, came under pressure. Nvidia fell 1.5% and was the heaviest weight on the S&P 500, while Advanced Micro Devices rose a modest 0.3% despite reporting much stronger quarterly profit than analysts expected.
Concerns about data center expansion drove selling overseas. Japan’s Nikkei plunged more than 4% to its lowest level since May as investors weighed the prospect of tighter restrictions on data center development under a Democratic Congress.
Winners: green energy and media
Other sectors gained. Wind energy stocks rose, while defense stocks largely retreated on the possibility that the war in Iran will be dialed back.
Media companies also advanced. Netflix and Comcast each rose about 4% and Disney gained 3.8% in early trading, according to Variety.
Bonds, oil and gold
Treasury yields declined. The yield on the 10-year Treasury fell to 4.92%. Bonds rallied as investors priced in a slower path for deficits, while gold also gained and the dollar slipped.
Oil prices eased. Brent crude fell 1.2% to $102.35 per barrel, while U.S. benchmark crude gave up 0.8% to $95.31.
Global markets
European stocks climbed. In early European trading, the CAC 40 in Paris rose 1.6%, Britain’s FTSE 100 gained 1.25% and Germany’s DAX climbed 1.5%. In Asia, South Korea’s Kospi rose 0.6%, while Taiwan’s Taiex lost 0.8%.
Earnings still matter
Some strategists cautioned that politics may matter less than corporate profits over time. “Earnings trump elections,” said Brian Jacobsen, chief economic strategist at Annex Wealth Management.
History offers some perspective. U.S. stocks have tended to do well in the six months following midterm elections regardless of which party wins, as stock prices depend more on corporate profits and interest rates.
Analysts also warned the day’s moves may not hold. Uncertainty remains about what the election results will ultimately mean for policy.
Investors will next turn to a heavy slate of corporate earnings and upcoming economic data for further direction.
