Europe's Banks and Clean Energy Stocks Rally, Defense and Tech Slip After Democrats Win Congress

Since AP race calls handed Democrats both the House and Senate late Tuesday, the market reaction has been less a crash than a sector rotation. Money moved toward banks and clean energy and away from defense and some of the biggest U.S. tech names.

Regular U.S. trading has not opened yet today, Nov. 4. The overnight signals have swung around. S&P 500 futures were down 0.2% at 2:21 a.m. ET and Nasdaq futures were down 0.3%, both recovered from steeper earlier losses. In a later Asian-session reading, S&P futures were up 0.2% and Dow futures up 0.4%. These are futures indications, not the open.

Europe: banks and wind power up, defense down

European stocks rose in early trading. The pan-European STOXX 600 gained 0.6%. Germany's DAX rose about 0.5% to 25,995.13, France's CAC 40 gained 0.4% to 8,055.02, and Britain's FTSE 100 edged up 0.1% to 10,646.43.

Bank stocks jumped 2.8%. Clean energy names, which have taken the brunt of the Trump administration's policies, were among the top risers: Denmark's Vestas gained about 5%, Ørsted surged 7.4% and Germany's Nordex rose 6.5%. European defense stocks fell.

US big tech slipped in German trading on the Tradegate platform. Amazon, Alphabet, Microsoft and Meta all declined, and Tesla and SpaceX each fell between 4.5% and 5%.

Asia and the safe havens

Japan's Nikkei 225 was down 1.4% to 62,188.63 in the AP's midday reading and closed about 1% lower, according to Business Insider. SoftBank, an OpenAI investor, dropped 3.2%. Kioxia fell 5.4% after guidance for October through December missed expectations.

Hong Kong's Hang Seng gained 1.5% to 23,888.46. The Shanghai Composite rose 2.2% to 3,686.17, rebounding from a year low on Tuesday. South Korea's Kospi rose 0.6% to 5,683.80. Australia's S&P/ASX 200 fell 0.6% after the central bank raised rates Tuesday.

Spot gold jumped 3% to $4,046 an ounce. Treasuries rallied, pushing the 10-year yield down to around 4.93%. The dollar index slipped 0.2%, falling 0.3% against the yen and 0.5% against the Swiss franc, while the euro gained 0.4%.

The AI question

The tech worry is specific. Democrat Gina Hinojosa defeated Republican Gov. Greg Abbott in Texas, and she has called for a moratorium on new data centers in one of the industry's biggest U.S. hubs. Democrats also flipped Republican-held Senate seats in Texas, South Carolina, Kansas and Ohio.

Michael Strobaek, global chief investment officer at Lombard Odier, said Democrats "may push to scale back tax incentives, shift more grid costs onto developers, and introduce early safety regulations."

Aidan Yao, senior investment strategist for Asia at the Amundi Investment Institute, told Reuters the midterms are "more like a referendum on AI than a referendum on Trump." If AI faces restrictions, he said, "the US economy, US inflation and US monetary policy all become very, very uncertain."

Others see little change. Stephen Brown of Capital Economics wrote that the size of the Democratic gains "does not change too much for the near-term policy outlook," because Democrats still lack a filibuster-proof Senate majority and Trump holds veto power. Kathleen Brooks, research director at XTB, called the impact "mild so far" and said investors will move from trading election uncertainty to trading what the results mean for policy. She said chip names could brush off AI regulation worries after Tuesday's rally.

That rally was narrow. On Tuesday the S&P 500 rose 0.4% to 7,568.92 even though most of its stocks fell. The Dow dropped 197 points, or 0.4%, and the Nasdaq climbed 0.8%. Nvidia and Broadcom did most of the lifting.

What strategists expected

Wolfe Research's Tobin Marcus said investors were not positioned for a sweep and described their stance as "begrudging acceptance." He said Wolfe shares the view that polling was likely overstating Democratic strength. JPMorgan had forecast a blue wave would knock the S&P 500 down about half a percent on Wednesday.

History is mixed. The S&P 500 has been higher one year out after every midterm since the early 1980s. But BTIG's Jonathan Krinsky found the index has averaged a 14% drawdown at some point in the second half of midterm years, and it has already posted double-digit gains in 2026.

Next on the calendar

The eurozone's flash consumer price index for October is due today, and the Bank of England announces a rate decision Thursday. On the fiscal side, Cedric Chehab, chief economist at BMI Research, said the result raises the prospect of a more contentious debt-ceiling fight in 2027, a risk for investors already worried about borrowing costs.