Midterms: from free fall to full recovery, what the Democratic win could mean for the stock market

Election night in the US was a real rollercoaster for Wall Street. As Democrats racked up wins, Nasdaq 100 and S&P 500 futures went into free fall, with the US100 losing more than 2.7% and the US500 around 1.6%, as can be seen on Capital.com charts. Hours later, with control of Congress already decided, the indices recovered the entire drop and even moved into positive territory, an intraday swing that is unusual for an overnight session. The question for equity markets is now a different one: who the winners are and what they could change. Among the main indices, the Russell 2000, which tracks small and mid-sized companies, appears to be benefiting the most. It was the index that fell the most between mid-August and mid-October, around 11%, more than the Nasdaq 100 and the S&P 500, but it has held up well since then, rising around 5% since 16 October. Today, ahead of the open, Russell 2000 futures are posting the biggest gains, around 1.7%, ahead of the Nasdaq 100 and the S&P 500.

A rollercoaster night

Selling began before any projection on the House. At around 20:48 (New York time, ET), with the first Democratic Senate wins in New Hampshire and North Carolina, NBC News reported S&P 500 futures down 1% and Nasdaq 100 futures down more than 2%. According to NBC, the market was paying particularly close attention to Georgia and Texas, two key states for artificial intelligence (AI) data centres.

The projection that Democrats had won the House of Representatives came at 22:11 ET, and the projection of full control of Congress at 23:23 ET. This is when the indices returned to the night's lows. S&P 500 futures fell as much as around 1.5% and Nasdaq 100 futures as much as 2.75%. From then on, the trend reversed: technology, the hardest-hit sector, led the recovery, and by around 06:20 ET the US100 was up 0.57% and the US500 0.90% from Tuesday's close. For the US100, this represents a swing of more than 3 percentage points between the night's low and current levels.

Source: TradingView (Capital.com), US100 and US500, change from the 3 November close; events according to NBC News. Times on 3 and 4 November 2026.

Past performance is not a reliable indicator of future results.

Some analysts already suspected the market might be overreacting. According to comments compiled by Reuters, Michael Arone of State Street Global Advisors said the biggest risk would be investors overreacting to a Democratic win. Charu Chanana of Saxo said lower yields could provide some relief and that the initial sell-off might not last. Tai Hui of J.P. Morgan Asset Management questioned how much of the decline was due to the election and how much to the AI theme, which had already been weighing on tech stocks for several weeks.

Who won and what could change

House of Representatives. According to the latest NBC News projection, Democrats are expected to hold 258 seats, well above the 218 needed and the party's largest majority since 1993. Hakeem Jeffries is expected to become Speaker of the House on 3 January. According to preliminary estimates from The New York Times, the Democratic lead in the popular vote could be around 13 percentage points, a margin not seen since the mid-1970s. Edison Research exit polls point to Democratic gains across virtually all demographic groups compared with 2024, especially among voters aged 18 to 29.

Senate. NBC also projects Democratic control of the Senate, with flips in North Carolina (Roy Cooper), South Carolina (Annie Andrews), Texas (James Talarico), Ohio (Sherrod Brown), Kansas (Adam Hamilton) and Iowa (Josh Turek). Overnight, Troy Jackson defeated Republican Senator Susan Collins in Maine, widening the majority, and Democrats held Michigan with Abdul El-Sayed. Alaska and Mississippi remain undecided; in Mississippi, Democrat Scott Colom was leading by just 28 votes. According to 270toWin's count, the Senate is expected to have 55 Democratic seats against 45 Republican seats, potentially reaching 56-44 if Democrats also win in these two states.

State governments. Democrats also won governorships in traditionally Republican states, such as Texas (Gina Hinojosa), Georgia (Keisha Lance Bottoms), Ohio (Amy Acton), Iowa (Rob Sand) and Nevada (Aaron Ford). In Texas, Democrats also won the attorney general and lieutenant governor posts and the Railroad Commission, the state's oil and gas regulator. For the market, these state-level wins matter, because many permits and incentives for data centres are decided at state level.

The announced priorities. According to NBC News, Jeffries outlined four areas of focus: reversing Medicaid cuts, extending the Affordable Care Act (ACA) tax credits, returning tariff powers to Congress and ending the war with Iran. Pete Aguilar, chair of the House Democratic Caucus, added that the party will propose legislation to bring down the cost of housing, healthcare, fuel, groceries and electricity, and to restore funding for Medicaid and food assistance. With the majority, Democrats will also control House committees, with investigative power over the Administration.

The limits: The new Congress only takes office in January and Trump retains his veto power. This means that much of the Democratic agenda may require negotiation with the White House. A divided government also tends to limit budget deficits, and next year is likely to bring a new debate over the debt ceiling. In practice, the most immediate impact may come from the ability to block, investigate and constrain the President's agenda, rather than from new legislation.

What it could mean for equity markets

Artificial intelligence and data centres. This was the theme that weighed most overnight. Texas and Georgia account for around a third of all AI data centre investment and projects. According to Newsweek, Keisha Lance Bottoms, Georgia's governor-elect, backed a temporary moratorium on data centres during the campaign, and New York, under Democratic Governor Kathy Hochul, was the first state to approve a one-year pause on the construction of large data centres. The initial reaction was strong but faded: for now, the market does not appear to be anticipating significant politically driven changes in this area that could hurt companies.

Technology. A slowdown in this investment could affect chipmakers, equipment suppliers and AI-linked power producers. The market's initial reaction was sharply negative but was fully reversed. The market already saw a Democratic win in both chambers as the most likely scenario, and much of that risk may already be reflected in prices after the recent sharp declines in AI and data centre-linked tech stocks: between the 6 October high and the 2 November low, the Nasdaq 100 had already lost around 10%.

Healthcare. Reversing the Medicaid cuts and extending the ACA credits could support the number of people with health insurance, which is relevant for hospitals and for insurers with heavy exposure to these programmes.

Tariffs. A Congress with more power over tariffs could limit further increases, which would tend to ease costs for retailers and importers, and could particularly help small companies such as those in the Russell 2000. According to NBC News, tariffs on allies pushed up the prices of groceries and other goods, one of the central themes of the campaign.

Energy and defence. An end to the war with Iran, if it materialises, could weigh on oil and fuel prices, which have risen sharply in 2026, and on defence companies. On the other hand, the possibility of reversing restrictions on renewable energy could favour solar and clean energy companies.

Sectors: who is reacting best and who could benefit most

The first reactions in individual stocks, still ahead of the open and with thin liquidity, show a clear split between sectors linked to Democratic priorities and those more associated with the Trump Administration's agenda. It is not yet clear what the reaction will be, as Wall Street has not yet opened, but pre-market moves can offer clues about the trend. Comparing these reactions with performance over the previous seven sessions also helps to show what the market was already anticipating.

Source: StockAnalysis.com (daily closes) and Yahoo Finance (pre-market, around 08:45 ET on 4 November 2026); Capital.com calculations and thematic classification. The 7 sessions run from the 23 October close to the 3 November close. The pre-market change is against the 3 November close. *AMD reported quarterly results the previous day, which influences the move. Indicative figures, to be updated at the open.

Past performance is not a reliable indicator of future results.

Healthcare. This is the sector with the most direct link to Democratic priorities. Insurers with the greatest exposure to Medicaid and the ACA marketplaces, such as Molina, Centene and Oscar Health, are among the biggest gainers ahead of the open, while the more diversified UnitedHealth is down around 1%. Over the previous seven sessions, most of the sector's stocks had been falling, such as Centene (−3.8%), UnitedHealth (−3.3%) and Universal Health Services (−5.2%), suggesting the market was not fully anticipating this scenario. Hospitals are also trading higher, with HCA Healthcare up more than 6% and Universal Health Services almost 4%, and could benefit because more people with insurance tends to reduce uncompensated care. Implementing these measures will, however, depend on agreement with the White House. Pharmaceutical companies, which are also part of the sector, are reacting more modestly: Eli Lilly is up more than 2% ahead of the open, after gaining 10.7% over the previous seven sessions, and Pfizer and Merck are up between 2% and 3%. For these companies, the benefit of more people having insurance is indirect, and a Democratic Congress could renew pressure to lower drug prices, as happened with the Medicare price negotiation provided for in the Inflation Reduction Act.

Solar and clean energy. First Solar and Enphase Energy are up more than 4% in pre-market trading. In First Solar's case, part of the move had already been priced in, with a gain of 8.1% over the previous seven sessions; Enphase, by contrast, had fallen 3.7%. A possible reversal of restrictions on renewables and reduced support for fossil fuels could support the sector, although any legislative change would have to get past the presidential veto.

Small caps. Russell 2000 futures are up around 1.7%, ahead of S&P 500 and Nasdaq 100 futures, after the index had already held up better than tech stocks in recent weeks. Small companies are more exposed to the domestic economy and less to the AI theme, and could benefit from tariff relief.

Technology and semiconductors. These were the hardest hit overnight, but also led the recovery, supported by AMD's results. Closer to the open, however, the momentum is fading: AMD has given back almost all of its gains and Nvidia is down more than 1% from Tuesday's close. Regulatory risk around AI and data centres, especially at state level, could keep volatility high in the sector in the coming weeks. AI-linked power and infrastructure companies are under pressure in pre-market trading after strong gains on Tuesday: Vistra is down more than 9%, Constellation Energy around 5% and Vertiv, which had gained more than 20% over the previous seven sessions, more than 6%.

Under pressure. Defence is now one of the hardest-hit sectors: Lockheed Martin is down 3.8% and Northrop Grumman 3.2% ahead of the open, as Democrats seek to end the war with Iran and could put pressure on Pentagon spending. Lockheed had risen almost 6% over the previous seven sessions. In oil, ExxonMobil and Chevron, which were already down more than 3% over the previous seven sessions, are down by up to around 1%, with Brent losing more than 2.5%. Companies most associated with the Administration, such as Trump Media & Technology, which is down nearly 11%, are falling sharply. Tesla is down more than 5% in pre-market trading, after rising 7.1% over the previous seven sessions. There is no news that directly explains the decline, but according to NBC News, Elon Musk was the largest individual donor in these elections, with around USD 250 million in support of Republicans, which may be weighing on how the market views the company. SpaceX, also controlled by Musk, is down more than 6% ahead of the open.

What to watch

• The Wall Street open, to confirm whether the futures recovery holds with more liquidity.

• The final number of Senate seats and the races still to be called.

• Trump's reaction: vetoes, executive orders and possible changes in the Administration.

• State policies on data centres, especially in Texas and Georgia.

• The debt ceiling debate in 2027 and Treasury yields.

• The dollar and gold as a gauge of political uncertainty.