Access both platforms from your single Saxo account.
London Quick Take - 5 Things to Know in Markets Today - US Midterms Special
5 to Know in Markets Today - Midterms Special
1.Blue Tsunami
The Democrats took control of the Senate and House of Representatives with a clean sweep that leaves President Trump a lame duck for the remaining two years of his administration. Firstly, the scale of the Democrat win means Trump won't challenge the results. There's a question now on whether this means he leans much more heavily on using executive actions on trade and foreign policy or takes a different tack. Trump admits the war on Iran has been a factor in the loss. Brent crude was steady at the 50-day line below $104, with Trump having signalled no imminent plan to strike Iran.
I've said before I see this set of midterms as likely a clearing event that the market will digest and use to propel into a year-end rally. It removes a major overhang for policy. While the scale of the pullback in AI names over the last month was arguably a little more than expected (blame Google), the extent of the correction just adds to the reasons to be constructive. There are positive seasonal factors even once you consider the Democrats' wall of worry for stocks. We've seen considerable de-grossing, with lighter hedge fund positioning into the election as a positive mix. Positive earnings updates from AMD, Super Micro Computer and Arista Networks are helping to add some positive spin today for tech names.
Blue Tsunami: It was more than just a blue wave that rocked US futures overnight, but bulls circled the wagons here and pushed Nasdaq-100 futures into the green by the time of the European open, while S&P 500 futs were also firmer to build on a rally of around +0.8% on Tuesday. Asian shares reversed heavy losses of as much as 4% to turn higher as investors digested whether a Democrat victory would deal blow to the AI trade. European shares opened broadly higher with the DAX and CAC each up around +0.4% while the FTSE 100 added +0.2%.
I've said before I see this set of midterms as likely a clearing event that the market will digest and use to propel into a year-end rally. It removes a major overhang for policy. While the scale of the pullback in AI names over the last month was arguably a little more than expected (blame Google), the extent of the correction just adds to the reasons to be constructive. There are positive seasonal factors even once you consider the Democrats' wall of worry for stocks. We've seen considerable de-grossing, with lighter hedge fund positioning into the election as a positive mix. Positive earnings updates from AMD, Super Micro Computer and Arista Networks are helping to add some positive spin today for tech names.
Blue Tsunami: It was more than just a blue wave that rocked US futures overnight, but bulls circled the wagons here and pushed Nasdaq-100 futures into the green by the time of the European open, while S&P 500 futs were also firmer to build on a rally of around +0.8% on Tuesday. Asian shares reversed heavy losses of as much as 4% to turn higher as investors digested whether a Democrat victory would deal blow to the AI trade. European shares opened broadly higher with the DAX and CAC each up around +0.4% while the FTSE 100 added +0.2%.
2.Are midterms good for stocks?
Was a Democrat clean sweep actually well priced? NDX was already into correction territory by Monday's close and testing key support at the 200-day moving average before yesterday's modest rally. Or maybe investors are seeing this as a clearing event and remembering that gridlock is usually good for stocks. Historically the pattern is quite reliable. The S&P 500 has tended to make slow progress in the months leading up to the elections. Annual US stock market returns are, on average, weakest in midterm years. But after a short drawdown as the results are made known and digested, the election acts as a kind of clearing event for risk appetite as political uncertainty recedes. Based on S&P 500 annual returns from 1953–2026, divided government has historically delivered meaningfully stronger equity returns than single-party trifectas at +14.3% on average vs +9.6%. Charu has a piece out on how investors can position after the result.
What's moving in Europe this morning? European defence stocks are taking a bit of a hammering off the back of the Democrat sweep – their control of Congress could hold up spending on defence and we are seeing some downwards moves in pre-markets for RTX, Lockheed Martin, Northrop Grumman and Palantir. BAE Systems slumped –5% and Babcock fell more than –3%. There is also a material shift – if Trump's mandate has been so definitively rebuked it brings a more Atlantic-facing, Europe-cooperating US back to the table in a couple of years' time. Bank stocks moved higher and led the Stoxx 50 while clean energy names that have been hit by Trump's policies were gainers too. Weir Group slumped –7% to the bottom of the FTSE 100 despite a decent-looking Q3 update with orders rising 8%. Miners rose on precious metals recovering strongly while copper prices firmed up as AI buildout worries collide with a reduced chance of US import tariffs on refined copper, which has distorted the market.
What's moving in Europe this morning? European defence stocks are taking a bit of a hammering off the back of the Democrat sweep – their control of Congress could hold up spending on defence and we are seeing some downwards moves in pre-markets for RTX, Lockheed Martin, Northrop Grumman and Palantir. BAE Systems slumped –5% and Babcock fell more than –3%. There is also a material shift – if Trump's mandate has been so definitively rebuked it brings a more Atlantic-facing, Europe-cooperating US back to the table in a couple of years' time. Bank stocks moved higher and led the Stoxx 50 while clean energy names that have been hit by Trump's policies were gainers too. Weir Group slumped –7% to the bottom of the FTSE 100 despite a decent-looking Q3 update with orders rising 8%. Miners rose on precious metals recovering strongly while copper prices firmed up as AI buildout worries collide with a reduced chance of US import tariffs on refined copper, which has distorted the market.
3.What's it mean for AI stocks
Are data centres in space the answer? A big chunk of the market reaction is about data centres; vital to the AI buildout and a major bone of contention among voters. The big surprise was Democrats James Talarico winning in the Texas Senate race and Gina Hinojosa the governorship of Texas. The governor can direct zoning and block data centre construction. This could be bad news for Elon Musk's companies. He bankrolled the Republican Ken Paxton's Senate campaign. Shares in Tesla and SpaceX declined in pre-market trading. "Data centers in space looking pretty appealing right now", Musk tweeted. Note also the blue tsunami could put a putative Tesla-SpaceX merger on ice.
Hinojosa's victory raises questions about the construction of data centres in the state of Texas. Democrats also took Georgia and Ohio, which are other significant states for data centre construction. There is a risk the AI infrastructure buildout could slow materially. This showed up in some of the higher beta data-centre specific names like CoreWeave and Nebius, which declined by 4% and 2% in pre-market trade respectively.
Hinojosa's victory raises questions about the construction of data centres in the state of Texas. Democrats also took Georgia and Ohio, which are other significant states for data centre construction. There is a risk the AI infrastructure buildout could slow materially. This showed up in some of the higher beta data-centre specific names like CoreWeave and Nebius, which declined by 4% and 2% in pre-market trade respectively.
4.What does gridlock mean
Gridlock: Mr Veto congratulated the Democrats on their victory but also said they would send "insane measures and I will veto them". How do Democrats approach this? We could see Congress push to investigate Trump and his family, raising the prospect of another impeachment process – albeit the bar to the Senate voting to convict is high with a requirement for a two-thirds supermajority. Nevertheless, with Trump's authority shattered by this reversal, we cannot rule out a deal being done for him to resign in 2027.
Treasury issuance could decline, which helps explain some of the moves in dollar and bond yields – Tsy Sec Bessent has indicated he might cut 20yr and 30yr issuance and said previously that the administration could speed up fiscal consolidation should the Democrats win. Today's quarterly refunding could see the Treasury give itself more scope to reduce long-duration supply. The belly of the curve could be where the best returns are to be found around the 20yr duration, whilst this could be a positive for gold.
The dollar dropped sharply, gold rallied and bond yields were lower but I don't think the result materially alters the economic outlook for the US. Changes in how the Treasury issues bonds and how the Fed conducts policy will probably have a bigger impact on Treasury yields. But investors should note that a Democrat-controlled Congress could use ‘must-pass’ legislation as leverage to delay One Big Beautiful Bill Act tax cuts, which could negatively impact equities, particularly consumer and healthcare names. Stocks tied to the AI trade will likely face a tougher regulatory environment, with a greater emphasis on safety of models, while data centre construction could face stricter tests and officials bow to pressure to slow the buildout.
A divided government reduces the chances of major legislative changes, such as raising corporate taxation or regulation, leading to greater policy stability. However, it can also mean budget impasses, debt-ceiling arguments and government shutdown risks. As such divided government raises downside risks to growth and tamps down on yields lowest upside risk to Treasury supply upside. A divided Congress is usually good for bonds because it’s much harder to carry out major fiscal stimulus or sweeping legislation, though this cycle is complicated by concerns about fiscal deficits and inflation. A Democrat-controlled Congress will increase oversight in areas like financial services, crypto and AI. Private equity and M&A activity could be constrained.
Treasury issuance could decline, which helps explain some of the moves in dollar and bond yields – Tsy Sec Bessent has indicated he might cut 20yr and 30yr issuance and said previously that the administration could speed up fiscal consolidation should the Democrats win. Today's quarterly refunding could see the Treasury give itself more scope to reduce long-duration supply. The belly of the curve could be where the best returns are to be found around the 20yr duration, whilst this could be a positive for gold.
The dollar dropped sharply, gold rallied and bond yields were lower but I don't think the result materially alters the economic outlook for the US. Changes in how the Treasury issues bonds and how the Fed conducts policy will probably have a bigger impact on Treasury yields. But investors should note that a Democrat-controlled Congress could use ‘must-pass’ legislation as leverage to delay One Big Beautiful Bill Act tax cuts, which could negatively impact equities, particularly consumer and healthcare names. Stocks tied to the AI trade will likely face a tougher regulatory environment, with a greater emphasis on safety of models, while data centre construction could face stricter tests and officials bow to pressure to slow the buildout.
A divided government reduces the chances of major legislative changes, such as raising corporate taxation or regulation, leading to greater policy stability. However, it can also mean budget impasses, debt-ceiling arguments and government shutdown risks. As such divided government raises downside risks to growth and tamps down on yields lowest upside risk to Treasury supply upside. A divided Congress is usually good for bonds because it’s much harder to carry out major fiscal stimulus or sweeping legislation, though this cycle is complicated by concerns about fiscal deficits and inflation. A Democrat-controlled Congress will increase oversight in areas like financial services, crypto and AI. Private equity and M&A activity could be constrained.
5.Stock movers today
AMD shares rose +7% in pre-mkt after it reported revenues surged 45% in the third quarter, driven by a near-doubling its revenues from its data centre business. CEO Lisa Su expects server revenue to double year over year in 2027 and upgraded data centre AI growth from the guidance provided at last quarter's earnings. For the fourth quarter, AMD expects about $17bn in revenue vs $16.2bn average analyst estimate.
Arista Networks surged +10% on strong earnings and positive guidance. The cloud networking company guided fourth-quarter earnings of $1.26 to $1.30 per share on revenue of $3.9b- $4.0bn, well up on the $1.15 per share and $3.60bn expected.
Super Micro Computer also jumped +7% on a top and bottom-line beat. For the full-year 2027, it guided revenues of between $72bn and $82bn, vs the roughly $69bn consensus before the earnings.
Marks and Spencer shares rose +2% on another positive update with Group adjusted profit before tax rising to £403.2m, versus £184.1m last year, ahead of the market expectations for around £390mn in the first half of 2026. We were looking for continued good momentum in food sales and MKS delivered - Food sales up 13.9%; adjusted operating profit of £288.6mn, margin of 5.6%. Fashion, Home & Beauty delivered strongly too with sales up 17.5%; adjusted operating profit of £150.5mn, margin of 7.5%.
Arista Networks surged +10% on strong earnings and positive guidance. The cloud networking company guided fourth-quarter earnings of $1.26 to $1.30 per share on revenue of $3.9b- $4.0bn, well up on the $1.15 per share and $3.60bn expected.
Super Micro Computer also jumped +7% on a top and bottom-line beat. For the full-year 2027, it guided revenues of between $72bn and $82bn, vs the roughly $69bn consensus before the earnings.
Marks and Spencer shares rose +2% on another positive update with Group adjusted profit before tax rising to £403.2m, versus £184.1m last year, ahead of the market expectations for around £390mn in the first half of 2026. We were looking for continued good momentum in food sales and MKS delivered - Food sales up 13.9%; adjusted operating profit of £288.6mn, margin of 5.6%. Fashion, Home & Beauty delivered strongly too with sales up 17.5%; adjusted operating profit of £150.5mn, margin of 7.5%.