Oil plunges, Wall Street rallies as Democrats sweep midterms

Brent crude oil prices sank below US$100 a barrel and stocks on Wall Street rallied after the Democratic Party swept the midterm elections, winning control of both houses of Congress, with vice president JD Vance blaming the war in Iran for the electoral rout, while President Donald Trump said there were no immediate plans to strike the Islamic Republic following the vote.

Big Tech companies such as Amazon and Microsoft propelled the Dow Jones Industrial Average higher as the changing political tide raised the prospect of a slowing in the pace of new data centres being built, cementing the grip the hyperscalers already have on the sector and tempering their projected spending.

Chipmakers such as Nvidia and Intel dropped on expectations of reduced artificial intelligence infrastructure investment, while defence stocks including Lockheed Martin and RTX were also weaker as investors prepared for the Pentagon’s budget to come under pressure.

And Australian futures are pointing to the rally continuing in the antipodes, with National Australia Bank due to report today.

Blue tsunami

The Democrats were on track to secure strong majorities in the US House of Representatives and Senate and won Republican strongholds across the country, such as the governorship in Texas.

Vice president Vance blamed the heavy loss on the war in Iran, and Trump said high petrol prices were the main liability, while acknowledging the conflict played a part.

Brent crude oil futures tumbled 9.2% to US$94.07/barrel at 7am in Auckland as traders weighed up whether there would be a faster end to the Middle East conflict, with Trump saying there were no plans for an immediate strike after the election.

Stocks on Wall Street surged on the Democrats’ victory, with Big Tech companies driving gains, with Amazon climbing 7.9% and Microsoft jumping 6.7%, on expectations that data centres would come under greater regulatory scrutiny. Chipmakers were broadly weaker, with Nvidia, Intel, Broadcom and Micron Technology all declining.

“This highlights a growing distinction between Big Tech companies monetising AI and infrastructure businesses that must finance substantial capital expenditure and deliver new capacity,” Moomoo market strategy consultant Greg Boland said in a note. “Democratic control of Congress also raises the prospect of greater scrutiny of data centre construction, electricity consumption and environmental approvals.”

Big moves

The Dow climbed 3% in late trading, led by 3M’s 9.6% surge after the maker of Post-it notes announced a US$7.4 billion settlement over injury claims related to its chemicals. Amazon, Microsoft and Apple were also at the top of the leaderboard, while Caterpillar, Chevron and Nvidia were the weakest performers on the blue-chip index.

Defence stocks were among the losers on Wall Street on the prospect of Democrats clamping down on the Pentagon’s spending, while SpaceX dropped 4.4% and Tesla was down 2.3% as investors questioned whether Elon Musk – a major Republican donor – would come under more intense scrutiny from legislators.

The S&P 500 rose 1.9% and the Nasdaq Composite gained 2.1%, while European stock markets were also stronger as the UK’s FTSE 100 increased 1.8%, Germany’s DAX advanced 2.2% and France’s CAC 40 was up 2%.

Earnings season continued with McDonald’s and Kraft Heinz gaining after they both beat analysts’ expectations.

The yield on US 10-year treasuries slipped 6 basis points to 4.9%, while gold futures rose 3.5% to US$4,077 an ounce and Bitcoin climbed 3.3% to US$80,344.

The greenback was broadly weaker, with the kiwi rising to 56.28 US cents at 7am from 55.93 cents yesterday.

The upbeat sentiment is poised to extend to the antipodes, with Australian futures pointing to a 1.9% gain for the S&P/ASX 200 index when trading opens across the Tasman.

Bank of New Zealand-parent NAB is due to report its annual earnings in Australia today, with the major lenders grappling with a sluggish property market.

There’s no major data scheduled in New Zealand today, while New Zealand Debt Management auctions $350 million of 2032, 2037 and 2051 bonds.

Reporting by Paul McBeth. Image from Maria Oswalt on Unsplash.