US SENATE

Majority secured

Seven Republican-held seats flipped

Democratic gains extended well beyond the closely contested states. The party captured Republican-held Senate seats in Texas, Kansas, Iowa, Ohio, Maine, North Carolina and South Carolina. It also gained more than two dozen House seats, with counting continuing in some districts. 

Why did voters change direction?

Post-election reporting and voter surveys point to frustration with the cost of living, high energy prices, the war with Iran and concerns about the administration’s conduct. The Republican campaign also struggled to retain support in some areas that had backed Trump in 2024.

These concerns weren’t confined to traditional Democratic strongholds. The shift extended into Republican territory, making the result more significant than an ordinary midterm loss for the president’s party.

What changes in Washington?

Passing major legislation will require cooperation between the White House and Democrats in Congress. Democratic congressional leaders will also gain control of committee agendas, investigations and spending negotiations.

But the president’s powers haven’t disappeared. Trump can veto legislation, direct much of the executive branch and continue to exercise powers already granted under existing laws. 

Wall Street rallied strongly on Wednesday 4 November following the US midterm elections, with investors welcoming greater political certainty and the prospect of a divided government limiting major changes to fiscal policy.

The S&P 500 closed 1.58% higher at 7,688.62, while the Dow Jones Industrial Average surged 3.03% to 53,356.12, gaining 1,569 points. The technology-heavy Nasdaq Composite rose 1.44%, closing at 25,736.51, while the smaller-company Russell 2000 index gained 1.58%. The rally was broad, with nine of the eleven S&P 500 sectors advancing.

Which sectors performed well?

Consumer discretionary shares led the rally, gaining around 4.3%. Retailers and businesses serving lower-income households benefited from expectations that Democratic control of Congress could lead to greater support for consumers. Financial shares gained approximately 3.5%, while real estate rose around 3.2%, helped by falling government bond yields.

Healthcare also performed strongly. Hospital operators, including HCA Healthcare and Universal Health Services, benefited from expectations that Democrats would seek to protect or expand healthcare funding. Renewable energy companies rallied as investors anticipated a more favourable environment for clean-energy investment. First Solar gained approximately 4.6%, while the Invesco Solar ETF rose around 5.7%.

Which sectors and companies struggled?

Energy was the weakest sector, falling approximately 4.8%. Oil prices dropped sharply, with Brent crude falling around 8% to approximately $95 a barrel. Investors increasingly considered the possibility of reduced tensions in the Middle East following the election, although any change in US foreign policy remains uncertain. Exxon Mobil fell approximately 4.6%, while Chevron declined 3.7%.

Technology produced a particularly interesting split. Apple and Microsoft rose strongly, gaining approximately 5.3% and 6.7% respectively. However, companies involved in building AI infrastructure suffered significant losses as investors considered the prospect of tighter regulation and restrictions on data-centre development. CoreWeave fell around 9.9%, Vertiv declined 12.9% and electricity supplier Vistra lost approximately 13.8%.

Semiconductor shares were also weaker, with Micron Technology falling around 7%, reflecting concerns that slower data-centre expansion could reduce demand for advanced chips.

Defence companies came under pressure as investors questioned whether President Trump’s proposed $1.5 trillion defence budget would receive congressional approval. Lockheed Martin fell approximately 6.9%, Northrop Grumman declined 4.5% and RTX lost 2.6%. Tesla also fell around 3.3%, while Trump Media & Technology Group suffered a particularly sharp decline.

What happened to bonds, gold and the dollar?

US government bonds strengthened as yields fell. The 10-year Treasury yield declined by approximately six basis points to 4.89%, reflecting expectations that divided government might restrain additional borrowing and government spending.

Gold rose by around 3%, while the US dollar weakened modestly against major currencies. Market volatility also fell sharply, with the VIX index declining approximately 20% to 16.61, suggesting investors were becoming less concerned about near-term market uncertainty.

The election result doesn’t mean that all of Trump’s policies will be reversed. The following areas deserve particular attention.

Government spending, taxation and US debt

Potential impact: High

One of the most direct effects will be on the government’s ability to introduce new spending programmes or tax changes.

The White House and Congress will need to negotiate spending bills. Democrats can block Republican proposals, seek changes to funding priorities or use budget negotiations to advance their own objectives.

This may restrain additional fiscal stimulus, although political disagreements could also produce government shutdowns or difficult negotiations over the federal debt ceiling.

Why investors should care: Less borrowing than previously expected could help Treasury bonds by reducing pressure on long-term yields. But weaker government spending could also reduce economic growth and corporate profits.

The direction of bond yields will depend on both the fiscal outcome and what happens to inflation.

Artificial intelligence and technology regulation

Potential impact: High for selected companies

AI spending has been a major driver of US stock market performance. Technology businesses have committed enormous sums to data centres, electricity supplies and advanced computer chips.

Democrats are expected to examine the economic, environmental and competition issues associated with this investment.

Greater scrutiny could lead to investigations into electricity costs, the availability of power, competition, data use and the effect of AI on employment.

New federal legislation would still need presidential approval, but congressional investigations and state-level regulations could influence company behaviour without a major change in federal law.

Why investors should care: Large technology companies account for a substantial proportion of the S&P 500. If investors lower their expectations for AI-related profits, the effect could extend well beyond individual technology shares.

Data-centre companies fell following the election, even as the broader market recovered.

Defence spending and the war with Iran

Potential impact: High uncertainty

The war with Iran has contributed to substantial increases in oil prices during 2026, adding to concerns about inflation and economic growth.

The administration has sought a significant increase in defence spending. Democratic control of Congress means those spending plans will face greater scrutiny and negotiation.

However, military and foreign-policy decisions remain areas where the president has substantial authority, subject to legal and congressional constraints.

Why investors should care: A reduction in geopolitical tensions could bring oil prices down, easing inflation and benefiting businesses and consumers.

Further escalation would risk higher energy costs, renewed inflation pressure and greater volatility in both equities and bonds.

Defence shares fell following the election as investors reassessed prospects for future government contracts.

The election’s economic consequences won’t be the same for every asset class.

These are potential effects, not forecasts of investment returns.

Government bonds deserve particular attention

One of the more interesting market developments has been the fall in US Treasury yields following the election.

The 10-year Treasury yield initially fell as markets considered whether divided government might limit future spending. That matters because investors have been concerned about the size of the US budget deficit, the cost of servicing government debt and persistent inflation.

A reduction in expected government borrowing could support longer-dated Treasury prices. Yet there is a complication: if reduced fiscal stimulus weakens economic growth, that could also affect corporate earnings and the outlook for interest rates.

Investors therefore need to separate two questions: will Washington borrow less than previously expected, and will inflation fall sufficiently to allow the Federal Reserve to reduce interest rates?

History offers an interesting observation. American shares have generally performed well during the months following midterm elections, regardless of which party gains seats.

Research following midterm elections since 1974, showed on average the market increased by 5.7% over 3 months and 12.4% over 6 months. There are several reasons why markets might improve after an election. Political uncertainty starts to fade, companies gain a clearer picture of possible policy changes and investors can return their attention to corporate earnings and economic growth.

But the historical sample is small. The US economy, inflation, interest rates and share valuations have differed enormously between election years.

Fidelity’s August 2026 research also found that stronger market performance after midterms has not depended on one particular party winning. Economic fundamentals have mattered much more over longer periods.

For someone investing through a Stocks and Shares ISA or SIPP, the consequences could extend well beyond the US. Many global equity funds have substantial exposure to American companies. The US also plays a major role in setting the direction of international bond markets. There are four areas worth watching.

The outlook for bonds

If divided government reduces the pressure for additional deficit-funded spending, US Treasury yields could fall.

That may also influence UK gilt yields, although the relationship isn’t automatic. UK inflation, fiscal decisions and Bank of England policy remain important.

Oil prices and inflation

Possibly the largest economic uncertainty is what happens next in the Middle East.

Higher oil prices feed through to transport costs, manufacturing, household energy bills and eventually inflation. UK households and businesses are exposed to many of these pressures.

If tensions ease and oil prices decline, that could improve the inflation outlook and reduce pressure on central banks to keep interest rates elevated.

The opposite would create a more difficult environment for portfolios holding both shares and bonds.

Should you change your portfolio following the election?

For most long-term investors, the election alone isn’t a reason to make major changes.

The new political balance could affect individual sectors and government spending decisions. But portfolios face other important risks, including US equity valuations, inflation, currency movements and geopolitical events.

Review your US exposure. Look at how much of your portfolio is invested in American companies and whether a relatively small number of technology businesses account for a large share of your equity investments.

Check your bond allocation. Consider how sensitive your bond holdings are to changes in interest rates. Longer-dated bonds can gain substantially when yields fall, but they also suffer larger capital losses when yields rise.

Wait to see the policy implications. Renewable energy shares may have rallied and defence companies may have fallen, but sustained returns will depend on earnings, valuations and what policies actually change.

 © Clearly Investments Ltd. Educational information only. This is not investment advice.