Weekly update - United States: a blue wave reduces policy uncertainty but raises market concerns
The U.S. midterm elections resulted in a clear victory for the Democratic Party, which secured strong gains in Congress while also winning several gubernatorial races in key states. While these results are unlikely to significantly alter the U.S. economic outlook, they could help reduce uncertainty and volatility surrounding both domestic and foreign policymaking. Financial markets initially reacted negatively to the outcome, reflecting concerns that tighter regulation could slow the expansion of data center capacity and weigh on parts of the artificial intelligence ecosystem. Nevertheless, we maintain a constructive view on both equity markets and the AI sector, as revenue prospects remain favorable across the industry's value chain.
A blue wave across all levels of government
The midterm elections resulted in a decisive Democratic victory, exceeding market expectations. While the final results have yet to be confirmed, ballots counted so far indicate that Democrats are guaranteed to hold at least 58% of seats in the House of Representatives and 54% of seats in the Senate. Moreover, Democratic candidates currently maintain a narrow lead in several of the remaining races yet to be called. Democratic gains were also substantial at the state level, most notably through victories in the gubernatorial elections in Texas, Georgia, and Ohio, all of which were previously held by Republicans. From a legislative perspective, these gains provide Democrats with significant influence over fiscal policy, as Congress has the final say on federal spending and taxation. While President Trump retains veto power, the size of the Democratic majority should reduce the risk of prolonged political gridlock. Control of Congress also gives Democrats a decisive role in confirming appointments to key federal positions, including the Supreme Court and the Federal Reserve. Finally, control of additional governorships provides greater flexibility over state-level tax policy, particularly regarding tax incentives designed to support infrastructure investment.
More political than economic consequences
From an economic perspective, the election outcome is unlikely to trigger major changes in the near-term outlook. The Democratic platform does not include meaningful fiscal consolidation measures, nor does it seek to fundamentally reverse President Trump's trade or immigration policies. However, the results could lead to significantly lower volatility in both domestic and foreign policy. First, they could accelerate efforts to end the conflict with Iran and facilitate the reopening of the Strait of Hormuz, as Democrats campaigned on bringing the conflict to a close, a position that enjoys broad public support. Similarly, Democratic control of Congress, and therefore of its taxation powers, would limit President Trump's ability to introduce additional tariffs.
A blue wave could weigh on data center expansion
While financial markets initially reacted positively to the decline in political uncertainty, the week ultimately ended with a sharp market correction, concentrated particularly in semiconductor stocks. The sell-off reflected expectations of a slowdown in data center construction, driven by a regulatory and tax environment that is likely to be less supportive of the sector under Democratic policies. That said, these measures do not fundamentally alter the earnings outlook across the broader artificial intelligence value chain. Both current results and forward guidance remain supportive for hyperscalers, large language model (LLM) developers, and other companies operating throughout the AI ecosystem.