Equities markets rallied on Wednesday as investors reacted to the Democrats winning control of the House and Senate in the US midterm elections. The Nasdaq climbed 1.44%, and the S&P 500 rose 1.58% as oil prices fell, markets began to hope for a resolution to the war in Iran, and investors cheered the end of election uncertainty.
But the mood turned ugly yesterday as traders considered the possibility that a Democratic Congress may push for stricter regulation of AI and more rigorous oversight of Big Tech companies. Semiconductor companies were hit especially hard by fears that data centre buildouts might be stalled by tougher political opposition.
AI expenditure matters. Deloitte estimates that AI-related technology investment has accounted for approximately half of US real GDP growth since 2025, while AI-linked companies have grown from roughly 25% of the S&P 500 market capitalisation in 2022 to around 45% in 2026. Given AI’s growing importance to both economic growth and financial markets, its future development will inevitably feature prominently on the policy agenda – yet to be confirmed – of the new US Administration.
So, within hours of trading opening on Thursday, Wednesday’s gains were wiped out. The Nasdaq Composite fell about 5.5% and moved into correction territory, more than 10.0% below its 6 October record close. The S&P 500 lost roughly 4.4% and the Dow Jones Industrial Average about 3.4%. Chips took the brunt of it, with the PHLX Semiconductor Index (SOX) down 12.3%.
The damage spread beyond Wall Street. South Korea’s KOSPI fell 5.3% on Thursday and 6.1% today on the same fears about data centre spending. Volatile trading triggered a circuit breaker today. Leading chipmakers Samsung Electronics and SK Hynix shed 17.1% and 17.0% for the week, respectively.
Investors, as always, should not be rattled by two or three days of erratic trading. History shows that midterm years tend to be the weakest of the four-year US electoral cycle, with the S&P 500 averaging a 10% annualised gain since 1932. The year after the midterms is typically the strongest, with an average gain of 15%.
Yet this track record does not explain why this pattern occurs or guarantee that it will be repeated. The S&P 500’s Thursday fall was also its worst second day after a midterm in nearly a century of data – highlighting why historical patterns should be treated as context rather than predictions.
It is also interesting to note that historically, Democratic administrations have sometimes moderated or reversed prominent campaign commitments once in office, particularly where these encountered congressional constraints, adverse court rulings, or economic crises.
Examples range from Franklin D. Roosevelt abandoning balanced-budget orthodoxy during the Great Depression to Barack Obama dropping the public health insurance option and Joe Biden approving new oil development. However, the record suggests that outright reversals are less common than compromise, dilution, or reprioritisation.
For investors, the implication is that Democratic campaign platforms should not be automatically treated as a dependable guide to eventual policy.
We believe that meaningful growth requires long-term decision-making, and this is only possible within a stable policy environment. The future US government will be acutely aware of the impact caused by local and international policy instability.
Although a blue tsunami swept the midterm elections, markets will be closely watching the policy environment shaped by this new Democratic administration, as well as the interaction between Trump and both chambers of Congress. Importantly, the historical record of walking back on the same big-ticket items that got them elected to Capitol Hill in the first place reminds investors that the market’s reaction to potential AI-expenditure dips and data centre reductions might not turn out as anticipated.
Investors should distinguish between noise that moves markets for days and fundamentals that move them for years.
“Risk is what’s left over when you think you’ve thought of everything.”
– Morgan Housel, financial author
Global News
- US stocks reversed Wednesday’s post-election rally on Thursday as fears of tighter restrictions on data-centre expansion compounded concerns over heavy AI spending, rising debt and uncertain returns. The S&P 500 fell 4.4%, its worst session since April 2025, while the Nasdaq 100 lost 6.4%, its steepest decline since March 2020. The broader Nasdaq Composite entered correction territory, more than 10% below its recent peak. Selling spread across all 11 S&P 500 sectors as investors sought safety in government bonds.
- US data-centre expansion faces tighter restrictions following Tuesday’s elections, with roughly 40% of planned capacity in states whose incoming governors pledged construction pauses, according to research firm Cleanview. Slower approvals could delay projects or shift investment elsewhere, with Bloomberg Intelligence estimating a 5% to 7% reduction in expected AI infrastructure spending in 2027. Reduced spending could ease pressure on major technology companies’ cash flow, while weakening demand for chips and equipment. However, many campaign pledges have yet to become policy.
- Elon Musk’s businesses face growing regulatory risks after the Democratic election gains, with potential restrictions on data-centre expansion and greater scrutiny of government contracts and subsidies. Texas governor-elect Gina Hinojosa has called for a halt to new data-centre projects pending stronger community protections and an end to tax breaks. Tesla and SpaceX shares fell as much as 12% and 11% respectively on Thursday as investors reassessed their AI growth prospects. The political shift also adds uncertainty about a potential merger between the two companies.
- The dollar retained most of its recent gains despite a brief post-election decline, with the Bloomberg Dollar Spot Index remaining less than 1% below October’s nearly 18-month high on Thursday. Resilient US growth and the expectation of further interest-rate increases continued to support the currency, analysts said. However, weaker demand for US shares and lower returns on US government bonds could discourage overseas investment, reducing demand for dollars. Friday’s employment report and next week’s inflation figures will help shape expectations for US interest rates and the currency’s direction.
- US Treasuries rallied on Thursday as the technology sell-off drove investors towards safer assets and raised concerns that slower AI investment could weaken economic growth. Yields fell across maturities, with the benchmark 10-year yield trading near 4.83%.
- Gold was heading for its strongest weekly gain since August on Friday, up more than 5%. The advance also reflected earlier hopes that the election result would increase pressure to end the war in Iran, easing inflation and reducing the need for further US rate increases.
- US trading partners could gain room to resist Trump’s demands following the Republicans’ defeat in Tuesday’s midterm elections, analysts said. Japan and South Korea may slow US investment pledges totalling $900 billion, while India could delay a trade agreement. China may seek greater leverage before its trade truce expires in January. However, analysts cautioned that a weakened Trump could intensify pressure on trading partners, leaving the threat of further tariffs unresolved.
- Trump retains broad foreign-policy powers despite Tuesday’s Republican defeat, limiting Democrats’ ability to change US policy abroad. The incoming Congress plans to use its investigative and funding powers to press for an end to the war in Iran and renewed support for Ukraine, but Trump’s military authority and veto power remain significant constraints. European officials warned that his setback could make him more unpredictable, reinforcing calls for less reliance on US security support. China, meanwhile, reaffirmed cooperation with Washington, although greater congressional scrutiny could restrict further technology concessions.
- Investors are divided over corporate job cuts as companies seek to improve efficiency, fund AI investment or respond to weakening demand. Microsoft and PayPal shares edged higher after announcing workforce reductions, while Volvo Cars fell sharply as it deepened cuts amid declining demand in China. Schaeffler announced plans on Tuesday to eliminate 3,460 jobs in Europe. With the number of S&P 500 companies announcing restructurings this earnings season on course to rise about 20% year-on-year, investors are scrutinising whether savings support future growth or merely offset falling sales.
- AMD forecast fourth-quarter revenue of $17 billion on Tuesday, above analysts’ $16.3 billion estimate, as demand for AI and other data-centre processors remained strong. The outlook initially helped ease investor concerns about the sustainability of AI infrastructure spending. Third-quarter data-centre sales nearly doubled, offsetting weaker PC and gaming sales. Chief Executive Lisa Su expects revenue growth to accelerate in 2027, with data centres potentially accounting for up to 80% of total sales.
- Samsung Electronics and SK Hynix fell sharply on Friday as investors feared tighter US data-centre restrictions could slow AI investment and weaken demand for memory chips. Samsung closed 6.4% lower, and SK Hynix lost 10.4%, extending Thursday’s semiconductor sell-off on Wall Street. Their exposure to AI servers and data centres leaves both companies sensitive to changes in technology spending. However, analysts cautioned that tougher oversight of new projects would not necessarily lead to the cancellation of existing investments.
- Disney is preparing to make thousands of job cuts, with some managers asked to target 20% annual cost savings through staff reductions and other expense cuts, according to details reported on Tuesday. Chief Executive Josh D’Amaro plans to reinvest part of the savings in film and television programming, technology, theme parks and cruise ships. The proposed reductions would affect divisions unevenly and follow several years of cost-cutting, as Disney targets double-digit growth in adjusted earnings per share this financial year.
- Nvidia CEO Jensen Huang fell out of the world’s ten richest people on Thursday as the technology sell-off sharply reduced the wealth of leading AI investors. His fortune declined by $15.1 billion to $150.9 billion, placing him 13th on the Bloomberg Billionaires Index. Elon Musk and Oracle co-founder Larry Ellison also suffered substantial losses. Together, the index’s 500 billionaires lost $185 billion; an indication of their heightened exposure to falling equity valuations.
- As at Thursday’s close the S&P 500 was down 3% for the week.
Local News
- Municipal election results pointed to widespread coalition negotiations as counting passed 63% on Thursday night. The ANC held about 32% of the national vote, ahead of the DA on 25%, signalling a sharp decline from its 2021 performance. Of 100 councils with results calculated, 69 had no outright winner, strengthening smaller parties’ influence over coalition talks. The vote followed widespread frustration over water shortages, unreliable electricity and deteriorating municipal infrastructure. The Independent Electoral Commission cautioned that results remained provisional pending objections, with finalisation expected over the weekend.
- The JSE closed 3.67% higher on Thursday, easing from an intraday gain of about 5%, as it caught up with the initial global response to the US mid-term elections after Wednesday’s public holiday. Stronger precious-metals prices supported miners, while Naspers made the largest individual contribution, helped by gains in Tencent. Earlier dollar weakness and lower US bond yields supported sentiment, while the week’s fall in oil prices eased miners’ operating-cost concerns. Investors also hoped the election outcome could hasten an end to the war in Iran. As of the time of writing, the JSE had held onto most of Thursday’s gains.
- The rand reached a two-week high against the dollar on Thursday, supported by stronger precious-metals prices and improved appetite for emerging-market assets after the US mid-term elections. It traded around R16.40 during the afternoon, compared with R16.65 on Tuesday, as expectations of political gridlock in Washington weighed on the dollar. Analysts said sustained rand strength and lower oil prices could ease fuel costs and inflation but cautioned that the relief rally might not last and that a renewed escalation in Iran remained a risk.
- President Cyril Ramaphosa said on Wednesday that the US mid-term election results could help reset strained relations with Washington, opening the way for renewed cooperation on trade and investment. His remarks followed US plans to revoke South Africa’s duty-free access under the African Growth and Opportunity Act. While acknowledging the setback, he stressed that the broader trading relationship extended beyond the programme and called for stronger bilateral ties.”
- South Africa’s debt-to-GDP ratio peaked at an estimated 74.6% in 2025/26, National Treasury said on Thursday, revising down October’s estimate of 78.4% after updated national accounts showed a larger economy. The ratio is now projected to fall below 70% by 2032/33, a year earlier than previously forecast. Treasury stressed that the revisions reflect a larger measured GDP rather than stronger real growth or changes to revenue, spending or debt estimates.
- New-vehicle sales rose 10.4% year on year in October, putting South Africa’s market on course to exceed 600,000 sales in 2026, according to Naamsa figures released on Monday. Passenger cars and rental purchases drove growth despite higher borrowing and fuel costs. Electric and hybrid vehicles accounted for one in nine cars sold in September, with sales over the first nine months already exceeding last year’s total by 34%. Exports improved in October, although shipments over the first ten months remained 8.3% below a year earlier.
- The Board of Healthcare Funders has proposed a voluntary fund allowing medical schemes to share the cost of exceptionally expensive rare-disease treatments, easing pressure particularly on smaller schemes. The proposal follows a regulatory ruling requiring KeyHealth to fund a child’s treatment with AstraZeneca’s Ultomiris, expected to cost more than R7.3 million in the first year. Discovery Health cautioned that pooling risk would spread costs rather than make treatments more affordable, leaving members to fund the expense. KeyHealth intends to appeal the ruling.
- Grindrod completed its first private freight-train test on South Africa’s national rail network on Monday, marking an operational milestone for the country’s open-access reforms. The train carried almost 3,000 tonnes on the North-East Corridor following safety and regulatory preparations. The trial follows rail access agreements with 12 private operators.
- Redefine Properties reported its strongest South African property fundamentals in five years on Monday, as lower vacancies and firmer tenant demand supported 7% growth in annual distributable income per share and dividends. Debt reduction strengthened its balance sheet, while Poland contributed more than a quarter of distributable income. The group forecasts 3% to 5% growth in distributable income per share in 2027, although consumer pressures, borrowing costs and falling office renewal rents remain risks.
- Cape Town’s luxury housing shortage is intensifying as wealthy buyers compete for limited stock and rising costs strain local affordability. Foreigners accounted for 75% of purchases above R20 million by individuals in the first half of 2026, or 35% including companies and trusts, according to Lightstone. Citywide listings have fallen more than 20% since October 2025, Property24 data show, supporting prices and pushing buyers towards the Cape Winelands and nearby coastal towns.
- As at the time of writing, the rand was 1.2% stronger against the dollar, and the ALSI was up 4.75% for the week.
Sources: Dynasty, WSJ, Bloomberg, Reuters, Moneyweb, Business Day, IOL, ITWeb, etc
