US stocks rallied sharply after Democrats secured majorities in both the House of Representatives and Senate, prompting investors to reassess the outlook for trade policy, government spending, interest rates and artificial intelligence investment.
The Dow Jones Industrial Average climbed 1,203 points, or 2.3%, to 52,989.79 by 9:46 a.m. ET. The S&P 500 gained 1.72% to 7,698.80, while the Nasdaq Composite advanced 2.13% to 25,912.39.
- The Dow Jones Industrial Average surged more than 1,200 points on November 4 after Democrats won control of both chambers of Congress, reducing political uncertainty.
- Goldman Sachs expects the election outcome to influence tariffs, federal spending and the Iran conflict, while Morgan Stanley maintains an S&P 500 year-end target of 8,000.
- Technology stocks rebounded, but semiconductor and AI infrastructure companies remained under pressure as investors assessed potential restrictions on data center construction.
The rebound followed a volatile October marked by concerns about AI infrastructure spending, rising corporate borrowing, elevated oil prices and the Federal Reserve’s monetary policy.
Financial markets initially reacted negatively to the Democratic election victory before reversing direction as President Donald Trump indicated that he would accept the results and work with the opposition.
Investors increasingly viewed divided government as a potential constraint on further tariff increases, major fiscal changes and other policies that have contributed to market volatility.
The rally was broad, although gains were concentrated in large technology companies, consumer businesses and healthcare stocks. Semiconductor manufacturers and data center operators faced a different outlook as the election raised questions about future AI infrastructure development.
Goldman Sachs sees potential changes to tariffs and government spending
Goldman Sachs economists expect the Democratic takeover of Congress to give lawmakers greater influence over fiscal negotiations, trade policy and the administration’s handling of the Iran conflict.
Chief economist Jan Hatzius indicated that larger Democratic majorities could strengthen the party’s negotiating position while reducing the influence of smaller factions within Congress.
Goldman Sachs expects Democrats to use upcoming fiscal deadlines to seek concessions on selected tariffs, federal spending cuts and the military conflict with Iran.
The bank estimates that reversing parts of last year’s spending reductions could increase federal expenditure by approximately 0.25% of GDP in 2027.
Additional agreements on healthcare subsidies or discretionary spending could provide further fiscal support. However, Goldman Sachs does not expect a major overhaul of federal AI regulation in the near term.
President Trump’s veto authority and the absence of a filibuster-proof Democratic majority in the Senate limit the scope for sweeping legislative changes.
For equity markets, the immediate implication is a lower probability of abrupt changes to corporate taxation and federal spending.
The next significant fiscal deadline is December 11, when existing government funding authority expires.
Morgan Stanley maintains S&P 500 forecast of 8,000
Morgan Stanley remains constructive on US equities despite October’s correction and persistent concerns about AI valuations.
The bank’s equity strategists maintain a base-case S&P 500 target of 8,000 by the end of 2026. From the index’s November 4 morning level of 7,698.80, that would represent approximately 3.9% additional upside.
Morgan Stanley identifies three issues that have constrained the market:
- Uncertainty surrounding AI infrastructure investment and opposition to data center construction.
- Political risks associated with the midterm elections.
- Tight financial conditions, including elevated Treasury yields and restrictive monetary policy.
The election has removed one of those uncertainties, but the remaining risks have not disappeared.
Andrew Slimmon of Morgan Stanley Investment Management argues that markets generally respond favorably to divided government because it limits the ability of either political party to implement major changes without negotiation. He also considers a possible reduction in oil prices important for the inflation outlook.
A resolution of the Iran conflict could relieve pressure on energy costs and reduce the need for additional Federal Reserve tightening.
Morgan Stanley’s economists currently expect fewer interest rate increases than financial markets have priced in, although persistent inflation could change that assessment.
The bank also expects AI investment to become more selective. Rather than concentrating exclusively on semiconductor manufacturers, future spending could increasingly benefit companies involved in electricity generation, power grids, cooling equipment and data center infrastructure.
Citi warns AI infrastructure stocks could face further pressure
The strongest divergence in Wednesday’s trading emerged within the technology sector.
Amazon gained approximately 7%, Alphabet advanced more than 3%, and Microsoft and Apple also recorded substantial increases. However, companies directly exposed to AI data center construction experienced renewed selling pressure.
Citi Research’s head of US equity strategy, Scott Chornert, views the election as an important reduction in political uncertainty but warns that AI infrastructure companies face additional regulatory risks.
Democratic victories in Texas and other major data center markets have increased the likelihood of restrictions on new facilities.
Texas Governor-elect Gina Hinojosa has proposed a moratorium on new data center construction, citing concerns about electricity costs, water consumption and pressure on local infrastructure.
Such measures could slow investment in computing equipment, power generation and networking infrastructure.
Amazon, Alphabet and Microsoft have faced increasing scrutiny over the hundreds of billions of dollars committed to AI infrastructure.
Slower construction could reduce near-term capital expenditure and improve free cash flow, supporting valuations.
For semiconductor suppliers, however, delayed projects could translate into weaker orders and slower earnings growth.
Nvidia, Broadcom and Micron traded under pressure on Wednesday despite gains across the broader technology market.
AMD proved an exception after reporting third-quarter revenue of $13.3 bn and issuing stronger-than-expected guidance. Its shares gained approximately 5% during early trading.
The divergence suggests investors are becoming more selective about which companies will benefit financially from AI investment.
Wells Fargo expects economic fundamentals to outweigh politics
Wells Fargo Investment Institute expects the composition of Congress to influence fiscal negotiations, tariffs, defense spending and renewable energy policy.
Nevertheless, its analysis emphasizes that corporate earnings, interest rates, energy prices and consumer demand are likely to remain more important for overall market performance.
The bank does not expect sweeping policy changes under divided government. Instead, negotiations over federal borrowing and spending could determine the direction of longer-term Treasury yields. This distinction matters because the US government is already facing substantial financing requirements.
Additional fiscal expenditure may support economic growth but could also increase Treasury issuance, keeping borrowing costs elevated.
The 10-year Treasury yield declined toward 4.9% on Wednesday as investors reassessed inflation risks and the possibility of lower oil prices.
A sustained decline in bond yields would support equity valuations, particularly among companies whose expected earnings are concentrated further into the future.
However, renewed fiscal concerns or stronger-than-expected inflation could reverse that improvement.
Tesla and SpaceX shares fell sharply on November 4, 2026, after Democrats won control of both chambers of Congress and secured major victories in Texas, where Elon Musk has concentrated much of his business and political activity.
US manufacturing and logistics data support corporate earnings
Recent economic indicators suggest US demand remains resilient despite elevated borrowing costs. Factory orders increased 1.8% in September, exceeding economists’ expectations for a 1.2% increase. Orders were 7.2% higher than a year earlier, while demand for machinery and other capital equipment also strengthened.
Civilian aircraft orders contributed significantly to the monthly increase, meaning the headline figure should not be interpreted as evidence of equally strong growth across every manufacturing industry.
The October Logistics Managers’ Index rose to 70.7 from 70.2 in September, indicating particularly strong activity across transportation, warehousing and inventory management.
Businesses continued building inventories ahead of the holiday shopping season. These figures support the earnings outlook for industrial manufacturers, logistics providers and consumer-facing companies.
However, the same report showed inventory costs rising sharply, with the relevant index reaching 88.8, its highest level since March 2022. Higher warehouse and transportation costs could eventually affect corporate profit margins.
The combination of stronger demand and persistent cost inflation complicates the Federal Reserve’s decision-making.
For stocks, continued economic expansion is positive only to the extent that it does not require substantially higher interest rates.
Healthcare, renewable energy and consumer stocks lead gains
Wednesday’s rally extended beyond technology. Healthcare companies benefited from expectations that Democrats could seek to reverse cuts to federal healthcare programs and expand insurance subsidies.
Molina Healthcare and Centene gained approximately 5%, while HCA Healthcare advanced around 7%.
Renewable energy stocks also strengthened as investors anticipated a more favorable environment for clean energy incentives. The Invesco Solar ETF rose approximately 8%.
Consumer companies benefited from expectations of lower energy costs and reduced trade uncertainty.
Walmart advanced around 3%, while Bank of America gained approximately 2.5%. McDonald’s shares also increased following better-than-expected quarterly earnings. The company reported adjusted earnings of $3.57 per share and revenue of $7.16 bn. Although revenue missed expectations, global systemwide sales increased 4% and consolidated operating income rose 7%.
Defense contractors moved in the opposite direction. Northrop Grumman and Lockheed Martin declined more than 4% as investors considered the possibility of greater congressional scrutiny of defense expenditure and a diplomatic resolution to the Iran conflict.
Falling oil prices ease inflation concerns
Oil markets provided another important source of support for US equities.
West Texas Intermediate crude futures fell approximately 3% toward $93 per barrel, while Brent also declined as investors considered the possibility of renewed diplomatic negotiations between Washington and Tehran.
Lower energy prices could reduce transportation costs, ease consumer inflation and improve profit margins for airlines, retailers and industrial companies. They could also influence expectations for Federal Reserve policy.
Goldman Sachs has previously argued that an easing of the Middle East conflict could reduce the need for additional monetary tightening.
However, crude oil remains highly volatile, and a durable decline would depend on improvements in regional security and energy supply. The movement in oil prices is therefore a significant variable for the stock market’s November outlook.
Stock market forecast: Can the rally continue through November?
Wednesday’s advance has improved the short-term outlook, but investment bank research suggests that the sustainability of the rally will depend on earnings, inflation and financial conditions.
- Morgan Stanley’s 8,000 target for the S&P 500 remains achievable if corporate earnings expectations stabilize and Treasury yields decline.
- Goldman Sachs sees potential support from changes to trade and fiscal policy, although the benefits would depend on negotiations between Congress and the White House.
- Wells Fargo emphasizes that economic performance should ultimately have a greater influence on equity returns than the election outcome itself.
Citi’s analysis highlights a more immediate risk: tighter restrictions on data center construction could produce further weakness in AI infrastructure stocks even while the broader market advances.
For November, three developments will be particularly important.
Federal Reserve policy and the October jobs report
The US employment report scheduled for November 6 will provide another indication of labor market conditions.
Strong employment and wage growth could reinforce expectations that the Federal Reserve will maintain restrictive monetary policy.
Weaker figures could reduce pressure on interest rates but also raise concerns about slowing economic activity.
Corporate earnings and AI investment
Investors will continue examining whether AI infrastructure spending is producing sufficient revenue and cash flow.
Strong results from individual technology companies may not be enough to support the entire sector if financing costs remain elevated or large projects face delays.
Oil prices and geopolitical developments
A sustained decline in crude oil could improve inflation expectations and support consumer spending.
Renewed escalation in the Middle East would create the opposite effect, potentially pushing energy prices and Treasury yields higher.
Historical performance offers some encouragement but little certainty.
US equities have generally delivered positive returns following midterm elections, yet the market’s 2018 experience illustrates the risks of extrapolating from the initial rally. Stocks rose immediately after that election before entering a substantial correction as monetary conditions tightened.
The current market faces similar concerns about borrowing costs, alongside additional uncertainty surrounding AI investment.
The November 4 rally has reduced the political risk premium and restored demand for major US equities. Whether it becomes a sustained recovery will depend on earnings growth, lower inflation and the ability of corporate balance sheets to absorb the costs of continued investment.
