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By Huileng Tan You're currently following this author! Click to unsubscribe from email alerts. US stocks surged after Democrats won control of Congress in the midterm elections.
Michael Nagle/Bloomberg/Getty Images A Democratic Congress may have less influence over markets than investors expect, an economist said. US stocks rose sharply Wednesday after Democrats won control of Congress in the midterms. The Dow jumped 3% in its best day in 18 months, the S&P 500 gained 1.6%, while the Nasdaq climbed 1.4%, as investors wagered that a divided Washington would limit some of the policy changes that have shaken markets.
The move suggested investors saw the result as a check on fiscal expansion, the war in Iran, and other White House actions that have unsettled markets. But investors may be overstating how much the result changes the outlook, according to Steven Blitz, the chief US economist at GlobalData TS Lombard. "Democrats control Congress for the next two years, but not Trump," Blitz wrote in a Wednesday note.
Democrats will not take control of Congress until January. They will also lack the two-thirds majorities in both chambers needed to override a presidential veto. Democrats could still shape budget negotiations and healthcare spending, and scrutinize or seek to influence the policy environment for data centers and AI.
But the White House will retain substantial discretion over trade, foreign policy, and executive actions — areas with major implications for companies and markets, Blitz wrote. AI valuations aren't the biggest risk Blitz also questioned whether Democratic control will bring the lower government borrowing and Treasury yields that some investors may expect. "Democrats are not about shrinking the budget deficit, just shifting what the deficit finances," he wrote.
Blitz does not see a broad reassessment of technology-stock prices as the market's biggest risk. He said stocks are fairly valued relative to GDP and the benchmark 10-year Treasury yield. The VIX, a widely watched gauge of expected stock-market volatility, is not signaling unusual stress, he added.
Instead, shifting correlations between stocks point to rotation among sectors rather than positioning for a broader bear market. Consumer-discretionary stocks and hospital operators rose on Wednesday, while data-center operators and semiconductor companies fell. Blitz expects the economy to improve in 2027 even as underlying inflation rises.
For stock investors, the bigger question is how fiscal policy, inflation, the Fed, trade, and geopolitics change the prospects for individual sectors. "Equity returns going forward will be increasingly tied to policy (including the Fed), rather than rerating tech sector equities," Blitz wrote. US stock futures were mixed late Wednesday.
Dow futures were up 0.3%, S&P 500 futures slipped 0.3%, and Nasdaq futures were down 1.1%. Read next Business Insider tells the innovative stories you want to know Business Insider tells the innovative stories you want to know Business Insider tells the innovative stories you want to know Business Insider tells the innovative stories you want to know Huileng Tan You're currently following this author! Click to unsubscribe from email alerts.
Huileng Tan is a senior reporter based in Singapore, covering markets, the global economy, commodities, and investing. Her reporting focuses on how shifts in money, demographics, technology, and policy are reshaping businesses, wealth, and everyday life around the world. Since joining Business Insider in 2021, she has covered everything from commodity booms and investor trends to China's economy, the AI trade, and the forces driving global markets.
Before joining Business Insider, she reported for CNBC, Dow Jones, ICIS, and The Wall Street Journal. Reach her at htan@businessinsider.com . Markets Stocks Stock Market More Investing Wall Street Economy Elections Regulation AI Tech Tech stocks Finance
Source: Business Insider
