U.S. stocks surged Wednesday as Democrats’ sweeping victory in midterm elections fueled optimism the Iran War could end soon, sending oil prices lower. Tech megacaps also jumped as investors bet a Democratic-controlled Congress will force companies to carry out AI spending cuts that they’ve been calling for.

“The election is over and markets are breathing a sigh of relief,” said Citadel Securities’ Scott Rubner.

Amazon.com Inc. and Microsoft Corp. rallied more than 6% apiece, leading a basket of the so-called Magnificent Seven 2.2% higher and contributing to a 0.9% gain in the Nasdaq 100 Index. The Dow Jones Industrial Average posted its best day since 2025.

The S&P 500 Index jumped 1.6% for a second straight session of gains with consumer discretionary and financials leading gains. Even less sturdy parts of the stock market jumped, with the Russell 2000 Index rising 1.6% and a basket tracking profitless tech stocks up 1.6%. The Cboe Volatility Index hovered around 17.

On the flipside, the S&P 500 Energy Index sank 4.8%, tracking oil prices lower — posting its worst session since April 2025. Brent oil futures plunged 10% to trade below $100 a barrel with investors hoping that the Democratic sweep could usher a quicker end to the ongoing Iran conflict that has upended global energy markets.

“Today was the culmination of a monthlong puzzle that the market was trying to solve for. While there is major uncertainty as to ultimate winners and losers, from a macro standpoint, investors are glad that we are on the other side of midterms,” said Joe Gilbert, portfolio manager at Integrity Asset Management. “The market climbed the wall of worry and now it is in the rearview mirror.”

Disappointing tech earnings had initially weighed on stocks ahead of the vote amid concern that the artificial intelligence buildout would face greater regulatory scrutiny under a Congress controlled by Democrats. Treasuries rallied on expectations that a so-called blue wave would limit Trump’s ability to add to the deficit.

“For investors, data-center policy is moving higher on the risk list,” said Wells Fargo Investment Institute’s Darrell Cronk. “Congressional Democrats could use the debt-ceiling negotiations as leverage to challenge 100% expensing for data centers, while Democratic governors may pursue higher taxes, tighter permitting and additional development restrictions.”

The Democrats scored victories in Republican strongholds across the country, flipping Senate seats in places like Texas and Ohio, in addition to winning House races in districts Trump had easily carried in 2024. Key governorships also changed hands in what amounted to a wholesale rebuke of the administration and its policies.

“This is landing at a sensitive moment, as the AI trade was already undergoing a valuation and capital-spending reassessment,” said Florian Ielpo, head of macro at Lombard Odier Investment Managers.

At the broader market level, however, Ielpo sees the implications as less negative, noting that the political gridlock should reduce the likelihood of “another major fiscal expansion, while the accompanying decline in Treasury yields could ultimately provide some support to equities.”

Meanwhile, Siebert Financial’s Mark Malek noted that while the blue wave was indeed real, it could not “overpower the AI wave.” While there will be impacts from it, Malek noted that backlash to data centers was not a partisan issue. Those concerns are likely to make conditions tougher but not bring construction of data centers to a complete halt.

“Governors may campaign against data center projects, but governing introduces pressure from jobs, payrolls and property tax revenue,” said Malek. “A pause or list of conditions often marks the beginning of a negotiation, not the end of a project.”

Among individual movers, Tesla Inc. and Space Exploration Technologies Corp. slumped as investors weighed potential consequences for Republican donor Elon Musk’s companies. Data-center stocks including CoreWeave Inc. and Iren Ltd. also slipped.

The biggest electoral risk to AI stocks runs through Texas, according to Michael Purves, chief executive officer at Tallbacken Capital Advisors LLC. The state is home to one-third of all the AI megawatts in the country and has an additional 250 projects planned, he added.

JPMorgan Chase & Co.’s trading desk, which remained tactically bullish, said Wednesday that concerns about a possible shift in Texas policy may be overstated.

To Citadel Securities’ Rubner, U.S. stocks are primed for a year-end rebound as the midterm election removes a source of uncertainty, corporate earnings remain resilient and lackluster investor positioning leaves room for renewed buying.

Overall, stocks have tended to rally after midterm elections. Since 1982, large-cap equities have gained about 15% on a market-cap-weighted basis and 16% on an equal-weighted basis in the six months following midterms, data compiled by Morgan Stanley show. Both measures have advanced roughly 22% over the subsequent year.

Wall Street has increasingly looked to Election Day as a potential catalyst for a rebound after a difficult October. But investors hoping the midterm elections will clear the way for a year-end stock rally may be disappointed, says Barclays’ Alex Altmann.

The election is unlikely to change the fundamental questions driving the recent market volatility, according to Altmann. That’s because the biggest forces weighing on equities — questions over AI’s payoff and the cost of financing its buildout — won’t be resolved by the vote, he said.

Sectors in focus

—Shares of some U.S. cloud computing providers and data center suppliers are falling after Democrats made strong gains in midterm elections, clinching control of both chambers of Congress.

—U.S. homebuilders rose on Wednesday after Democrats won control of both chambers of the U.S. Congress in a midterm election landslide. The win led U.S. Treasuries to rally and yields to fall across the curve.

—Mining stocks rise after Democrats swept the U.S. midterm election. After the results, treasury yields and the U.S. dollar fell, making metals more attractive.

—Defense stocks slid on both sides of the Atlantic as Democrats’ landslide win in U.S. midterm elections dented expectations of a further ramp-up in the country’s military spending.

—Renewable energy stocks rallied around the world after the Democrats won control of both chambers of Congress in the U.S. midterm elections, an outcome seen as supporting more favorable policy for the industry.

—Canadian stocks had their biggest since March after Democrats gained seats in the U.S. midterm elections. Some strategists argue the trade talks will be more important to Canada’s publicly traded companies than the outcome of the election, but a Democratic win would put more pressure on President Donald Trump to take a less hardline approach to negotiations.

Here is what market participants are saying:

Jason Borbora-Sheen, portfolio manager at Ninety One:

“A Democratic sweep has been largely expected by markets, judging by polls and prediction websites in advance of the results. The reaction by markets has been understandably muted — an initial risk-off, tech-led move in futures overnight being largely unwound.”

Joachim Klement, head of strategy at Panmure Liberum:

“For now it’s marginally negative for AI and data centers in outer years but not much impact for the immediate future. I think much more interesting will be to see if Donald Trump will redirect his focus to foreign policy, now that he is constrained on domestic issues. We could well see renewed assertiveness against Iran, Cuba or other countries.”

Stephan Kemper, chief investment officer at BNP Paribas Wealth Management Germany:

“Large House losses by the president’s party have historically tended to occur in periods of elevated economic uncertainty or investor concern. As a result, those elections were followed by weaker, albeit still positive, equity returns than more moderate electoral outcomes. Given the existing weak mood around the AI trade, a strong democratic congress might nourish investors anxiety as regulatory risks seem to be increasing as a result.”

George Efstathopoulos, portfolio manager at Fidelity International:

“The U.S. midterms, like any major political event, have created uncertainty, widening the disconnect between market valuations and fundamentals. I am now trimming defensive positions, including utilities, to buy technology stocks in Asia and elsewhere, while adding some exposure to India for diversification. In tech, I like memory and Nasdaq stocks. Hyperscalers have reported strong earnings, the memory-chip cycle remains on a positive trajectory, and valuations are attractive.”

Neil Birrell, chief investment officer at Premier Miton:

“The bottom line is we’re in a situation where Congress is Democratic and the White House is Republican. That normally means not an awful lot happens, and that will probably be the case from here.”

(With assistance from William Haddad, Faseeh Mangi, Carmeli Argana, Levin Stamm, Rose Henderson, Emily Forgash, Geoffrey Morgan and Olivia Levieux.)

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