A blue tsunami hits Washington. What you need to know post-election

ANTHONY SAGLIMBENE – CHIEF MARKET STRATEGIST, AMERIPRISE FINANCIAL

MIDTERM MARKET PERSPECTIVES —  November 4, 2026

A blue tsunami hits Washington. What you need to know post-election.

Stocks entered Election Day on a cautiously constructive footing, with most major U.S. stock averages finishing the day higher. Notably, investors appeared more willing to step back into the AI trade yesterday after last week's forced selling cleared out some of the crowded positioning. For example, Info Tech, Communication Services, chipmakers and other AI-linked names led the rebound on Tuesday. That said, below the surface, most S&P 500 sectors finished Election Day in the red. In our view, the narrow leadership on Tuesday showed investors are still looking to technology for upside but remained guarded elsewhere ahead of the vote. Even with yesterday’s gains, the NASDAQ Composite is off over 8.0% from its early October high. The NASDAQ 100 Index is in a correction (down 10% from its high). And the Philadelphia Semiconductor Index is in a bear market, down more than 25% from its June high. Importantly, the largest company on the planet, Apple, saw its shares fall after the company's first quarterly report under new CEO John Ternus missed on key metrics. The drop in Apple put added pressure on the price-weighted Dow Jones Industrial Average, which finished yesterday in the red.

Coming into Election Day, investors were also dealing with a few other pressure points from a market perspective. Oil prices were volatile amid evolving headlines out of the Middle East. As an example, a U.S. strike on Iran's Qeshm Island on Monday was followed by new diplomatic efforts in the region. In addition, Treasury bond yields rose after job openings reached a four-month high, adding to the case for a "higher for longer" interest rate environment. As a result, higher yields weighed on rate-sensitive sectors and some non-tech cyclicals on Tuesday. Further, the CBOE Volatility Index (VIX) eased yesterday as major averages finished higher, but remained above its long-run average, a sign that investors were still cautious about post-election risks, in our view.

As markets closed on Tuesday, investors largely expected Democrats to win both chambers of Congress. Prediction market Kalshi gave Democrats more than a 90% chance of winning the House and roughly a 70% chance of winning the Senate. In the House, Democrats were expected to easily win back control from Republicans, where the current makeup is 219 Republicans to 214 Democrats. Obviously, the low hurdle rate here is why the market has been pricing in divided government for months now. However, the Senate was the more uncertain chamber heading into Election Day, and races here were seen as Republicans' best chance to stem a “Blue Wave.” Coming into Election Day, Democrats needed to flip four seats to overcome a 53-47 Republican majority, and six of the seven toss-up races were for Republican-held or open Republican seats. North Carolina and Ohio, where polls closed first, were widely seen as early signals of how the night might go. Of course, results in Michigan, Texas, and Alaska were also highly anticipated on the Senate side.

Finally, in our election preamble, market action has, to some extent, already begun to reflect election expectations, in our view. At a high level, a Democratic sweep has been widely seen as a slight negative for stocks and a positive for Treasury bonds. Investors already expect a Democratic sweep to make further deficit spending less likely and to add regulatory risk for AI data centers, energy and defense companies. Hospital and Medicaid insurer stocks have outperformed the broader Healthcare sector in recent weeks, while defense-tech stocks have sold off. We believe both moves suggest investors were already pricing in Democratic gains in Congress.

Given that backdrop, what do we know about midterm election results so far, and how are markets reacting?

Election results and themes:

• Democrats won control of both the House and the Senate last night. In the Senate, Democrats have won 54 seats to 44 for Republicans, a net gain of seven, with Alaska and Mississippi still too close to call. Democrats flipped Republican-held seats in North Carolina, South Carolina, Ohio, Texas, Kansas, Iowa and Maine. They also held Michigan, Georgia, New Hampshire and Minnesota. In the House, Democrats are projected to win at least 250 seats (well above the 218 needed for a majority), compared with a minimum of 160 for Republicans so far, with dozens of races still uncalled. In governor's races, Democrats flipped Georgia, Iowa, Nevada, Ohio and Texas, and held Pennsylvania, Wisconsin, Michigan and Arizona. Republicans held Florida and New Hampshire. The new Congress takes office in January.

• Democratic gains reached deep into states Republicans have held for decades. Texas and Kansas delivered the most historic results of the night. In Texas, James Talarico became the first Democrat elected to the Senate from the state since 1988. Gina Hinojosa became Texas's first Democratic governor since 1990 and its first Latina governor. Together, they ended a 32-year stretch without a Democratic statewide win, the longest such drought in the country. In Kansas, Adam Hamilton became the state's first Democratic senator since 1932, ending the longest run of single-party Senate control in the country. In Maine, Troy Jackson defeated longtime Republican Senator Susan Collins. Democrats won both the Senate race and the governor's office in Ohio and Iowa, states President Trump carried comfortably in 2024. In South Carolina, Annie Andrews won a Senate seat in a major upset. In Georgia, Keisha Lance Bottoms became the first Black woman elected governor in U.S. history. In our view, the breadth of these results points to a nationwide shift in voter sentiment this election cycle.

• Voter frustration over the cost of living, especially higher gas prices, drove Republican losses. As we have noted for months in various commentaries and from different angles, prices at the pump rose sharply after the war in Iran began, and many voters also linked tariffs to higher everyday costs. Exit polls showed the cost of living was a major factor for the vast majority of voters, and many pointed to the White House and Republicans in Congress for prices that haven't come down. President Trump said overnight that the Iran war was "a piece of" the Republican losses. Several winning Democrats, including in Texas, built their campaigns around affordability. In our view, voters' main message last night was about the cost of living.
• President Trump's lame-duck period will soon begin. With Democrats controlling both chambers of Congress starting in January, the President's legislative agenda will largely be stalled. As we noted on Monday, we expect the White House to rely more on executive orders, tariffs, export controls and agency actions, many of which will likely be challenged in court. In our view, President Trump’s relations with Democrats will likely be defined by oversight, subpoenas, confirmation fights and tense negotiations over budgets and the debt ceiling. Over time, investors may be surprised to find that there is a very narrow path to agreement between President Trump and Democrats on possibly populist priorities, such as extending expiring tax provisions or providing health care subsidies. Of course, foreign policy is where the President faces the fewest limits. Decisions on Iran and trade will likely stay with the White House, keeping oil and tariffs as live risks for markets, in our view.

Market impacts:

• Stock futures fell sharply overnight as results came in, then recovered by early this morning. Selling was heaviest in technology and AI-linked stocks during the overnight session, then spread to Asia, where chip- and AI-related shares fell. Treasury yields declined, the dollar weakened, and gold rose as investors moved toward safer assets. In our view, investors were starting to position for a Democratic sweep in the final days of the election, and the economic outlook itself has changed little based on last night’s results. The reversal in the overnight and premarket session also shows how quickly election-night moves can fade.

• This morning, the selling has narrowed to data center and AI infrastructure stocks, while renewable energy has rallied. By early this morning, several large technology stocks had recovered, while data center-linked names, including newer AI cloud providers, stayed under pressure. Solar and clean energy shares are rallying. Notably, we believe last night's governor races mattered as much as Congress, because states and local governments control most of the decisions that speed up or slow data center construction. In our view, Texas is the most important state for the national buildout, and its incoming governor campaigned heavily against data center expansion. Georgia's and Nevada's incoming governors ran on similar messages in other major data center markets. Granted, Republicans are expected to keep control of the Texas Legislature, which limits how far the new governor can go. Still, these results add pressure to an AI trade already strained by concerns over heavy spending, financing needs, and the timing of returns.

• Gridlock limits new fiscal policy, but budget fights move to the front. A Democratic Congress makes further tax cuts or large new spending packages unlikely over the next two years, which helped Treasury bonds overnight. Yet divided government also raises the risk of government shutdowns and debt-ceiling standoffs, beginning with year-end funding deadlines in a still Republican-controlled Congress. Deficits will remain large regardless of who controls Congress, and the Treasury's quarterly refunding announcement today is another test for longer-term bonds. In our view, longer-term bond yields are likely to stay elevated even if they ease after the election.
• Over the next two years, the election's biggest market effects are likely to show up at the sector level. With President Trump keeping his veto power, Democrats are unlikely to reverse his agenda through new laws. Instead, their influence will come through spending bills, oversight and the power to slow nominees at key regulators. Hospitals and Medicaid insurers rallied this morning on expectations that Democrats could delay scheduled Medicaid cuts, although investors had priced in much of that outcome ahead of the vote. Renewable energy could gain from congressional pushback on the administration's actions against the industry. Defense stocks have moved lower on expectations of tighter scrutiny of spending. In our view, crypto looks exposed, as stalled market-structure legislation now appears unlikely to advance over the next two years (probably already priced in). AI infrastructure likely remains tied to state-level data center decisions, which creates some unknowns. Banks could face more oversight and populist proposals, though regulators are likely to keep easing capital rules. Finally, Energy and trade-sensitive sectors will likely remain tied to the White House's decisions on Iran and tariffs, which Congress can do little to change.
• We expect election-driven volatility to be modest and short-lived. The overnight reversal is a case in point. Granted, some of the key risks facing stocks didn't end with last night's election results, as uncertainty over AI spending and tensions in the Middle East remain. Yet stocks have historically moved higher in the year after midterm elections, including years when the President's party lost control of Congress. In our view, investors tend to be more comfortable with gridlock than with one party holding unchecked power. Once the results settle, we believe investors will shift their attention back to economic growth, corporate earnings, and the outlook for AI spending. Those factors will matter far more for stocks over the next year than the composition of Washington.
• Our advice: Investors should remain diversified across market caps, sectors, and regions, manage technology concentration, and look past any election-driven volatility. And as we noted on Monday, investors who keep their politics largely separate from their investments tend to outperform those who let their party affiliation influence their portfolio and allocation decisions.