In a political earthquake, the "blue" side of US politics appeared to be in the ascendant, raising questions about President Donald Trump's ability to enact his agenda, and pointing to public unhappiness about the cost of living and foreign policy, among other topics. We carry initial reactions.

Democrats have won control of the House and Senate in the mid-term elections, seizing states such as Texas and South Carolina, and raising the prospect of a shift away from the “MAGA” policy mix associated with the Trump administration.

The Democrats have taken Republican-held seats in California, Utah, South Carolina, North Carolina, Missouri, Pennsylvania, Kentucky, New Jersey, and Ohio. They also won Senate seats in Texas and South Carolina for the first time in around 30 years. 

As of the time of going to press, the Democrats had won 53 seats in the Senate, and the Republicans 42, with final results remaining to come in. In the House, the figures are 221 seats and 129, respectively. (Source: BBC)

The “blue wave” comes at a time of domestic unhappiness about sticky inflation, cost-of-living increases, fears about the jobs impact of AI, President Trump’s foreign policy on issues such as Iran, relations with Europe, and the style and approach of his administration. With a younger, perhaps more Leftwing Democrat Party making waves, it also raises chances that there will be more of a push for higher taxes on HNW individuals, more regulation on business and not less. It leaves open how Congress and the executive will handle ballooning US public debt, given that neither the Republicans nor the Democrats appear to have made much of this topic in recent years. 

Amid possible concerns that a US shift to the Left, politically, could see more regulation on business, particularly AI data centres, and higher taxes on HNW individuals, US stock futures were down in early-morning trade in London. European stock futures were also lower, while yields on US Treasuries, the classic safe-haven asset, fell.

As the news reports came out this morning, Europe-based wealth managers speculated on what the results portend.

"In a stunning night for US politics, it looks like control of Congress will fall to the Democrats as voters signal their discontent with President Trump and his policies as the Iran war has fanned inflation and squeezed household affordability,” Kit Rees, investment strategist at Quilter, said in a note. “Indeed, Trump was re-elected in 2024 on the promise to get prices down, and today’s result is a rebuke to that broken promise with prices at the pump and on the supermarket shelves remaining stubbornly high.”

“Markets were already on edge going into the vote due to concerns over excessive AI spending from hyperscalers and elevated oil prices, making it a particularly febrile backdrop for the midterms,” Rees continued. “Even as investors await the full results of the vote, US assets are coming under pressure with the dollar and US stock futures sliding as investors reassess the outlook for Trump's agenda. With this set of results though we are entering a period of volatile policymaking and potential legislative gridlock, with Trump likely to use his presidential veto regularly.”

“Technology stocks, in particular though, could feel the heat as a Blue sweep raises worries that the sector is in store for greater regulatory scrutiny, especially when it comes to the buildout of data centres. AI has been an enormous engine powering the US economy, so any curbs on its future development could threaten to put the brakes on growth. It also makes it a trickier outlook for the world's biggest stock market whose fortunes have become increasingly dependent on whether the new technology delivers in terms of returns,” Rees added.

Stephen Jones, chief investment officer at Aegon Asset Management, said: “There is much anger and dissatisfaction being expressed here: against an unpopular war in Iran, against promises broken by government, against inflation, affordability, and insecurity of employment in a period of dramatic technological change. Answers to all these issues are not easy to find, but American voters clearly want a different set of people to try to find them.

“The market impact is one that sees concerns about fiscal stability rising again. US budget deficits are not easily resolved even with a one-party power base across Capital hill and the White House. With government divided now, in every sense of the word, the prospects of budget restraint and a credible fiscal plan for the US emerging look remote to us.

“The artificial intelligence trade has driven markets and indeed the US economy for the past three years. A change in Congressional tone towards technology and big business overall, towards how this now unfolds does present headwinds for markets and perhaps the US economy.  That said we see the impact of this technology revolution persisting and the productivity and innovation it offers business perhaps slowed but not ultimately diminished.

“After the surprise and the scale of the results for the Democrats overnight there will be reflection about what this might mean. History tells us that divided government isn’t that bad for the US economy. We will be back to worrying about the Federal Reserve view on interest rates, about the inflation profile into 2027, and about corporate earnings before long,” Jones added.

David Roberts, head of fixed income at Nedgroup Investments, said: “Initial reactions to Democratic victories at local and national level were risk off – no surprise. That some of the reaction quickly dissipated – equally no surprise. Global equity markets and the US dollar headed lower overnight following US midterms, the extent of the Blue Wave seemingly underestimated by investors.

“US Bond yields fell sharply, especially on short-dated bonds. Why? Democrat control at local and national level may put a brake on AI infrastructure build out. That’s been propelling US economic growth (think bricks and mortar spend rather than any AI efficiency gains) and heightening inflation. Hence the Fed might not need to hike next year,” Roberts said. 

“The first move of a market is often wrong and while bonds have held gains, risk assets partially recovered. No surprise. Why? If interest rates don’t rise in coming months, that should help corporate balance sheets as much as consumer ones. Much depends on Trump's tone. So far he’s been congratulatory and conciliatory towards Democrats suggesting an acceptance of results and willingness to work with them. If so, for markets it may be a case that the midterms are a case of 'nothing to see here’. Or perhaps, more accurately, less to fear than thought. Time will tell.

What Trump does next, especially with Iran, is more important than US midterm results for global markets in the next few months.”