Dow jumps 3% as divided Congress reduces risk of radical economic shifts

The S&P 500 rose 119.70 points on Wednesday to close at 7,688.62, marking its best single-day performance in three months. The Dow Jones Industrial Average climbed 1,569.40 points, a 3% gain, to finish at 53,356.12. The Nasdaq composite added 364.50 points, or 1.4%, to reach 25,736.51. This rally followed the midterm elections in which President Donald Trump’s party lost exclusive control of Washington.

Traders have historically favored divided government because it limits the likelihood of drastic changes to the economy. Wall Street strategists had advised investors to look beyond the vote, arguing that corporate earnings and interest rates matter more than legislative control. Brian Jacobsen, chief economic strategist at Annex Wealth Management, stated that earnings take precedence over elections.

Crude oil prices dropped sharply as markets priced in a potential end to the war in Iran. Brent crude fell 8.7% to $94.62 per barrel, its lowest level in two months. Vice President JD Vance attributed the Republican losses to the conflict, which had previously driven up energy costs. The decline in oil prices hurt major energy firms. ExxonMobil shares dropped 4.6%, and ConocoPhillips shares fell 5.2%.

Defense contractors faced pressure from investors who believe a Democratic-led Congress may pressure the administration to reverse its military strategy in Iran. Lockheed Martin shares declined 6.9%, Northrop Grumman shares dropped 4.5%, and General Dynamics shares fell 2.6%.

Stocks tied to President Trump and Elon Musk struggled. Trump Media & Technology Group shares plunged 24.5% to $4.49. Tesla shares fell 3.3%, and SpaceX shares dropped 3.8%. Investors are concerned about potential investigations by a Democratic Congress. Musk, a former high-level advisor to Trump, donated heavily to Republican candidates.

The artificial intelligence sector faced mixed reactions. Nvidia, a key chipmaker for AI, fell 3.2% and weighed most heavily on the S&P 500. CoreWeave, which provides cloud access to AI chips, dropped 9.9%. Investors worry that Democratic victories in Texas could slow the expansion of data centers. Conversely, Alphabet shares rose 3.2% after suffering its steepest drop on Thursday due to concerns over its high AI spending.

Healthcare and discount retail stocks led the gains. HCA Healthcare, which operates hospitals and outpatient centers, jumped 10.3%. Dollar Tree, a retailer focused on lower-income consumers, rose 9.6%. Traders expect Democrats to work to reverse some of the federal healthcare and food assistance cuts passed in the Republican budget bill.

Treasury bond yields fell as lower oil prices eased inflation concerns. The 10-year Treasury yield dropped from 4.95% to 4.88% late Tuesday. Investors see a divided government as a check against further deficit expansion. Global markets also rallied, with Paris stocks up 2%, Shanghai stocks up 2.2%, and London stocks up 1.8%. The Nikkei 225 in Japan was the outlier, falling 1.4%.

Carsten Brzeski, chief global macro economist at ING Bank, noted that Trump is not yet a lame duck. He described a pessimistic scenario where the president reignites tensions over tariffs and NATO spending. A more optimistic view suggests Trump may focus on ending major conflicts to win the Nobel Peace Prize, resulting in fewer commercial disruptions.