Wall Street is celebrating a major political defeat for President Donald Trump. US stocks rallied Wednesday after Democrats won control of both the House and Senate in the November 3 midterm elections.
The S&P 500 climbed 1.2% in early trading, while the Nasdaq gained 1.1%. The Dow surged more than 1,100 points, or 2.3%.
Solar stocks led the gains. First Solar jumped 15.1%, while Enphase Energy rose 12.1%. The rally was particularly surprising because US stock futures initially plunged overnight.
So, what changed?
1. Trump Accepted the Election Results
Investors initially feared a prolonged political confrontation after the Democratic sweep. Nasdaq-100 futures fell as much as 2.4% overnight.
However, markets reversed after Trump accepted the results, reducing fears of an election dispute.
2. Wall Street Expects Political Gridlock
Democrats now control Congress, while Trump retains presidential veto powers.
This makes major changes to taxes and government spending harder to pass.
Investors generally welcome this predictability.
As Federated Hermes executive Deborah Cunningham explained, divided government “typically creates a blockade against new legislation.”
3. US Treasury Yields Are Falling
The benchmark 10-year Treasury yield slipped to around 4.92%.
Investors expect a divided Congress could constrain government borrowing and spending. Lower yields can support stock valuations by reducing borrowing costs and making bonds less attractive relative to equities.
4. Democrats Could Help Renewable Energy and Healthcare
Investors expect Democratic lawmakers to challenge Trump’s environmental rollbacks and protect healthcare funding.
That explains the strong gains in solar stocks and healthcare companies.
However, AI data-center operators and defense contractors are facing selling pressure over potential regulatory scrutiny and spending cuts.
5. Strong Corporate Earnings Are Adding Momentum
The election arrived alongside positive business news.
AMD rallied after forecasting faster-than-expected growth in 2027, driven by AI data-center demand.
Arista Networks also reported exceptional revenue growth.
These earnings gave technology investors additional reasons to buy.
What Happens to Stocks in the Two Years After Midterms?
History suggests Wall Street could have more room to rally.
According to JPMorgan Asset Management, the S&P 500 gained roughly 15% on average in the 12 months following every midterm election since 1950.
Looking at the broader presidential cycle since 1928, stocks averaged approximately 14% in the calendar year following midterms and 8% in the subsequent presidential election year.
However, these are historical averages, not predictions. Corporate earnings and interest rates will ultimately determine whether the current rally lasts.
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