The Big Three
Democrats sweep the midterms
The US midterm elections delivered a decisive result, with the Democrats taking control of both the House of Representatives and the Senate. They flipped seven Senate seats without losing any of their own and are on course for a clear majority in the House, with a handful of races still being counted. The outcome sets up a divided government for the remainder of President Trump’s second term.
Markets welcomed the clarity. Futures slipped overnight as results came in, but reversed sharply once the outcome was known, and the S&P 500 rose 1.6% the following day. Treasury yields and the dollar both fell. Healthcare and renewable energy stocks were among the biggest gainers, while semiconductor stocks in Asia came under pressure.
The wider implication is that sweeping policy change is now much less likely. The administration will find it harder to pass its agenda on tax and trade, and the Senate’s role in confirming nominees gives Democrats greater influence over appointments, including to the Federal Reserve. The first test comes quickly, with government funding due to expire on 11th December. For investors, gridlock has historically been a supportive backdrop for equities, though the transition may bring bouts of volatility.
Tech stocks enter a correction
The sell-off in technology stocks that began with a disappointing earnings season deepened in early November. Alphabet suffered its worst day as a listed company in late October after a sharp rise in AI spending pushed free cash flow into negative territory, while Intel fell almost 30% on a weak outlook. On 5th November, the Nasdaq dropped around 5.5%, its worst day in 19 months, leaving it about 12% below its October record and in correction territory. Chipmakers bore the brunt, with the main US semiconductor index falling around 12% in a single day.
Two concerns are driving the move. Investors are questioning when heavy investment in AI will translate into returns. There are also worries that a Democrat-controlled Congress could slow the build-out of AI infrastructure. The weakness has spread beyond the US, with chip stocks in Asia also under pressure.
There have been tentative signs of stabilisation, with chip stocks rebounding sharply on 9th November, but daily swings remain large. For investors, Nvidia’s results on 17th November are the next major test of confidence in the AI trade, however the waters are muddied following founder & CEO Jensen Huang’s resignation on Thursday amid allegations surrounding his personal life, with US national security concerns quoted.
Rate hikes are back
The Bank of England raised interest rates for the first time since August 2023, lifting Bank Rate by 25 basis points to 4.00% on 5th November. The vote was 8–1, with one member preferring a larger half-point increase. The Bank pointed to disruption to energy supplies from the Middle East conflict and warned that inflation, currently 3.5%, could approach 5% by the middle of next year.
The US looks set to follow. October payrolls rose by 165,000, almost three times what economists had expected, and unemployment fell to 4.1%. Consumer prices then rose 0.4% over the month, ahead of forecasts, with core inflation also running hotter than hoped. Two Fed officials had already voted for a hike at the October meeting, and markets now see an increase at the 9th December meeting as very likely. The European Central Bank held rates in October but kept the door open to a December move.
For investors, the message is that the tightening cycle has further to run. Higher rates lift returns on cash and short-dated bonds, but they also tighten financial conditions at a late stage of the cycle, adding pressure on consumer spending and on the more rate-sensitive parts of the equity market.
Sources: Trading Economics, FactSet, CNBC, 11/11/2026.
