US midterms: What investors can expect after Democrats shatter Republican strongholds

[SINGAPORE] Democrats took control of both chambers of Congress in a dramatic win in the US midterm elections.

It is seen as a rebuke of President Donald Trump’s policies. They picked up 54 Senate seats and 242 seats in the House of Representatives as at 9.30 am Thursday (Nov 5) Singapore time.

Voters sent a strong message about their unhappiness with the state of the US economy, the Iran war and inflation, kicking Republicans out of even traditional “red” strongholds.

The elections, held on Tuesday, determine control of all 435 seats in the House of Representatives and about a third of the Senate, midway through Trump’s four-year presidential term.

Its implications will be felt far beyond the US’ borders as it raises the prospect of opposing forces between the White House and Congress.

Markets were already feeling the heat ahead of the polls, with artificial intelligence and technology stocks on Wall Street coming under pressure, amid concerns that the elections could prompt a shift in the US government’s policy priorities.

THE BUSINESS TIMES INSIGHTS

Powering Asean's Future 2026

Find out how enterprises are navigating power constraints and sustainability targets

ACCESS THE INSIGHTS

The jitters spilled over into Singapore on Thursday, with tech stocks AEM, Frencken and UMS among those having steep declines in early trade.

What does this mean for global markets?

Equities: The Democratic sweep could make it harder for Trump to push through major legislative changes, potentially limiting further fiscal stimulus.

Analysts at BMI, a unit of Fitch Solutions, said he would likely face significant legislative resistance and policy gridlock, although he could continue pursuing policies through executive orders.

SEE ALSO

The US 2026 midterms came down to money

US midterms: Democrats capture Congress in sweeping setback for Trump

BMI also warned that a sharp slowdown in data-centre construction and AI investment could lead to a greater-than-expected decline in overall investment, weighing on the US economy.

US equity futures fell as Democrats gained ground, with S&P 500 equity futures down about 1 per cent at the time of BMI’s commentary. Technology stocks also faced pressure amid concerns over AI valuations and the prospect of tighter regulatory scrutiny.

Congressional aides said that while a rollback of tariffs is expected, Trump will remain undeterred in his zeal for more tariff actions.

In Asia, stocks started Wednesday down, but retraced decisively after news of the Democrats’ win.

Singapore’s Straits Times Index opened lower on Thursday, having closed nearly flat at 5,268.63 the day before. However, the index closed the day 0.6 per cent higher at 5,301.

AI-linked stocks were also trading lower, with UMS down 6.2 per cent, Frencken down 4.4 per cent and AEM down 7.4 per cent as at 9.40 am.

The trend continued and UMS ended the day 15.6 per cent lower at S$1.78. Frencken fell further and lost 9.8 per cent to close at S$1.84; AEM plunged 20 per cent to S$6.37.

Interest rates and bonds: The election outcome could influence US Treasury yields through expectations for fiscal spending, government borrowing and inflation.

Greater constraints on government spending could ease concerns over additional borrowing, although political disputes over fiscal policy may also create uncertainty.

BMI flagged next year’s US debt-ceiling negotiations as a major risk, warning that the talks could become contentious at a time when Treasury yields are already elevated and fiscal risks are mounting.

DBS Group Research strategist Philip Wee noted on Monday that the midterms, falling oil prices and Friday’s US employment report could prompt investors to reassess the Federal Reserve’s tightening outlook.

The market-implied probability of a December rate hike had fallen to 73.5 per cent from a peak of 90.8 per cent on Oct 19, he said.

Currencies: The US dollar weakened as investors assessed the implications for fiscal spending and monetary policy.

Wee noted that the week’s developments could extend the dollar index’s retracement from its mid-October peak.

For Singapore investors holding US-dollar-denominated assets, movements in the greenback against the Singapore dollar could affect investment returns when converted into local currency.

Commodities: Oil and gold prices are also worth watching, particularly against the backdrop of the Middle East conflict.

Gold fell 0.5 per cent to US$3,925.25 an ounce in New York trading on Tuesday, as investors weighed the prospects of a diplomatic resolution to the conflict. The precious metal had already slumped nearly 7 per cent in October, falling below US$4,000 an ounce.

Lower oil prices have eased inflation concerns, although rising bond yields have weighed on gold, which does not pay interest.

The midterm results could increase policy uncertainty, although this may not necessarily translate into higher gold prices.

What does this mean for Singapore stocks?

DBS Group Research believes November presents an opportunity for investors to buy on market weakness, with Singapore real estate investment trusts (Reits), property developers and aviation-related companies among the potential beneficiaries of a Democratic win.

In a note published on Tuesday, ahead of the election results, DBS identified CapitaLand Integrated Commercial Trust , CapitaLand Ascendas Reit , City Developments Ltd , UOL and Sats as stocks that could benefit under this scenario.

The bank outlined three possible election outcomes, with different sectors positioned to benefit, depending on the composition of Congress.

Its Democratic-sweep scenario has now materialised, although the actual performance of these stocks will depend on how US policy and financial conditions evolve.

Investors will also be watching the Fed’s interest-rate outlook, movements in the US dollar and developments in the Middle East, which could have a more lasting influence on asset prices than the election result itself.