Benchmark indices on Wall Street staged a big rally after the Democrats swept both the House of Representatives and the Senate in the midterm elections, coupled with a sharp drop in oil prices as most big leaders blamed the Iran war for the GOP defeat.
The Dow Jones gained 3% or over 1,500 points to end above the mark of 53,000 for the first time after September 8. The index saw its biggest single-day gain since April 9 last year, when US President Donald Trump had announced his first reciprocal tariff pause. Futures tied to this index at one point were down 450 points as the Democrats extended their lead in the house.
The S&P 500 and the Nasdaq Composite gained 1.5% and 1.6% respectively. The Nasdaq futures were down over 650 points after the election result became clear before recovering all the losses and the index ended sharply higher.
However, experts believe that the public mandate given to the democrats is not the sole reason why Wall Street rallied last night.
Donald Trump’s willingness to agree to the mandate and express his desire to work with the Democrats in getting things done was a bigger factor. Experts believe this conciliatory tone helped the rally on hopes that more polarization could be avoided and the legitimacy of the results will not be questions. Trump had earlier warned of not accepting the results in case the Democrats swept them.
Deutsche Bank head of FX Research George Saravelos said that investors are breathing a sigh of relief after Trump accepted the results, which will now act as a break on extreme policy outcomes and bring down risk premiums.
However, there are skeptics about this rally on the street too. A CNBC Fed Survey of 30 fund managers, strategists and economists showed 63% of them saying the extended uncertainty around the balance of power created by legal challenges to the election results posed “some” market risk, up from 61% in September. 14% believed this was a “significant” market risk, up from 7% in September.
Analysts believe if Trump plays ball with the Democrats, the market could have a very strong end to the year. However, he remains the “X” factor and the “wildcard” as he can change his mind in minutes.
A sharp drop in crude oil prices also contributed to the Wall Street rally. Both Brent and WTI fell 8% each, and below the mark of $100 a barrel. Experts suggest that the election defeat could push Trump further to make a deal with Iran, but also warned that the reaction may be overdone as the risk of a military escalation remains high.
Qualcomm’s results disappointed the street as the stock fell 7% in extended trading. Initial jobless claims will be reported later in the day, along with an address from Cleveland Fed Chief Beth Hammack.
Dow Jones rallies 1,500 points after Democrat sweep – Here are factors that contributed to the rally