Dow Jones Forecast: DJIA soars as Democrats Take Congress

Dow Jones Forecast: DJIA soars as Democrats Take Congress

US futures         

Dow futures 2.3%, S&P 500 futures 1.7%  & Nasdaq futures  1.7%

European futures

FTSE 1.75%,  DAX  2%

• US stocks jump after a blue sweep in the midterm elections
• Democrats win the House and the Senate
•  Treasury yields and USD fall on results
• Oil falls on hopes of a de-escalation

U.S. stocks rise after Democrats secure sweeping midterm victory

U.S. stocks are opening higher on Wednesday after the Democrats secured a sweeping victory in the midterm elections, taking both the House of Representatives and the Senate.

The Democrats scored impressive wins against the Republicans as voters grew tired of record petrol prices, corruption and the ongoing war in Iran.

The market is pricing in fewer legislative changes amid a divided government in Washington, which could limit the prospect of large shifts in the economic outlook. Increased regulation in banking, crypto and data centres, together with limited spending, is raising concerns over slower growth.

As a result, Treasury yields are falling, boosting demand for equities.

Sector-wise, AI trade is in focus after Democrats made gains in data centre states such as Texas and Georgia. Public opposition to rapid expansion is potentially affecting around 45% of planned U.S. data centre capacity expansion, according to Goldman Sachs.

The AI trade has been under pressure recently as markets grow cautious about the soaring AI trend and the limited evidence of returns. The tech-heavy Nasdaq moved into correction territory at the start of this week.

Corporate movers

Trump Media and Technology Group is falling 11% after the decisive victory by Democrats in the U.S. midterm elections. Trump owns 41% of the company.

Tesla and SpaceX are down 6% and 7%, respectively, after the Democrats won control of the House and the Senate. Many newly elected candidates have critical positions on the rapid data centre buildout fuelled by AI.

Neo-cloud stocks are dropping sharply, with CoreWeave down 7%, IREN tumbling 6% and Nebius down 5%. Concerns over the outlook for data centres create a hurdle for data centre players.

Dow Jones forecast – technical analysis

The Dow Jones is recovering from a low of 51,300, testing the falling trend line support before rebounding above the 50 EMA to test 53,000, the October high.

Buyers will look to rise above 53,000 and push towards 53,800, the September high.

On the downside, support is seen at 51,300, today's low and the falling trend line support. A break below here exposes the 200 EMA at 50,750, ahead of 50,000.

FX markets – USD falls, GBP/USD rises

The U.S. dollar is falling as the Democrats take both the House and the Senate. Investors are weighing the prospect of tighter AI regulation, limited spending and a potential drag on economic growth. Treasury yields are under pressure, with the USD tracking them lower and dropping to a one-month low.

EUR/USD is rising amid a weakening U.S. dollar and after Eurozone inflation rose to a three-year high of 4% year-on-year in October, owing to surging oil and gas prices. Energy inflation jumped to 20.8%, its highest level since January 2023. October marked the eighth straight month that annual inflation was above the ECB's 2% target. The ECB is expected to hike rates again in December.

GBP/USD is rising amid a weaker U.S. dollar, while sterling looks ahead to the Bank of England meeting, with four rate hikes priced in between now and the end of next year. Expectations are for a 7-2 vote, although a 6-3 split remains a possibility. The question is whether the MPC will want to push back against aggressive rate hike expectations.

Oil drops on hopes of a de-escalation in the Middle East

Oil prices are down around $2 a barrel in a volatile session as investors await further developments in the U.S.-Iran war after Trump's party lost control of Congress.

Yesterday, Brent settled at its lowest level in a month as traders weighed up the possibility of talks to end the wars in Ukraine and Iran.

Following the defeat, the market is moving amid expectations that Trump could move on from Iran. However, for more significant losses, the oil market would need to see further progress in the diplomatic process.

Qatar has stepped up mediation efforts to avert an escalation of attacks following the U.S. elections.