(Nov 5) : Asian stocks were poised to follow Wall Street higher after a Democratic sweep in the US midterm elections sent oil plunging on hopes the monthslong conflict with Iran may end sooner.
Equity-index futures for Japan, Australia and Hong Kong pointed higher following the biggest gain for the S&P 500 since August. Futures for South Korea’s tech-heavy Kospi index edged lower, tracking losses in US chip stocks amid concerns over the future of data-center development. The Nasdaq 100 Index rose 0.9%, propelled by gains of over 5% each in Microsoft Corp., Amazon.com Inc. and Apple Inc.
Brent crude sank over 8% to below US$95 a barrel, with Senate Minority Leader Chuck Schumer pledging to end the war, saying some Republicans would back the effort. Treasury yields dropped across the curve on Wednesday, as traders trimmed bets on Federal Reserve interest-rate hikes over the coming year. The dollar weakened the most in two months.
The market rally signals that investors are willing to look past a potential policy gridlock in Washington after Democrats wrested control of both chambers of the US Congress. The gain in Treasuries on oil’s slump and speculation that the so-called blue wave would limit President Donald Trump’s ability to add to the deficit is also seen as supporting stocks.
“The stock market is now celebrating congressional gridlock, President Trump’s willingness to work with the new Congress, and the fact that the Trump administration may not immediately attack Iran now that new negotiations are anticipated,” said Louis Navellier, chief investment officer at Navellier & Associates.
US stocks are set for gains into year-end as the election removes a source of uncertainty, earnings remain strong and lackluster investor positioning leaves room for renewed buying, according to Scott Rubner, head of equity and equity derivatives strategy at Citadel Securities.
Since 1946, stocks have been higher one year after every midterm vote, including all four instances when both the House and Senate flipped to the party opposing the president, said Keith Lerner at Truist Advisory Services Inc.
“That supports our base case of giving the bull market the benefit of the doubt, but earnings, the economy, interest rates, valuations, and market trends remain more important to our view,” he added.
While Democrats could complicate data-center development in some states, many investors see little immediate threat to the AI investment theme that’s powered a rally in stocks tied to the sector.
Greater congressional oversight will not necessarily derail the AI investment cycle as underlying demand is still solid, according to Ulrike Hoffmann-Burchardi at UBS Global Wealth Management.
“Yes, potential worries over AI regulation are high, but the reality is markets hate uncertainty and now with the election out of the way, we are seeing buyers step in across the board,” said Ryan Detrick at Carson Group.
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