Wall Street wobbles, then recovers after Democratic sweep

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Analysts see gridlock, not policy U-turn, as AI shares slip and business' wait for clarity Nasdaq 100 futures dropped as much as 2.4 per cent when counting was underway to quickly…

Analysts see gridlock, not policy U-turn, as AI shares slip and business' wait for clarity

Dubai: US stock futures lurched lower, then recovered on Wednesday after Democrats won control of both chambers of Congress. Markets were quick to react, with the Nasdaq taking a hit initially with AI and tech stocks breaking the brunt of the outcome.

The 10-year Treasury yield eased to about 4.9 per cent after topping 5.3 per cent a day earlier, a 24-year high. The dollar slid to a one-month low. Asian markets took the heavier blow as votes were still being counted during trading hours. Japan’s Nikkei fell almost 3 per cent, and SoftBank plunged 8 per cent. European markets also pointed lower before the open and quickly bounced back.

David Meier, economist at Julius Baer reacted to the fall in the dollar index. He expects only modest softness, because tighter monetary policy and AI investment still support the currency.

“Some US dollar softness is nevertheless plausible. Markets anticipate greater regulatory scrutiny of the artificial intelligence (AI) sector, potentially weighing on AI capex and associated capital inflows, an important source of US dollar support this year. Beyond these sector-specific considerations, the election outcome may also reinforce a modest ‘gridlock premium’, he added.

Mathieu Racheter, head of equity strategy research at Julius Baer, says the sweep was partly priced in. He notes that Trump’s veto limits legislation that could change near-term earnings. The bigger risk is valuations.

Uncertainty over future taxes and regulation could push investors to demand a higher premium for US equities. “We expect this uncertainty to become more prominent in late 2027 or early 2028, when the presidential campaign brings the prospect of a broader policy shift into focus.”

He bets on a more diversified portfolio allocation to steer off risks. "While US politics will continue to influence markets globally, rising domestic policy uncertainty strengthens the case for…

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