It appears the Democrats are poised to celebrate gains in the US midterms. Betting markets Polymarket and Kalshi put the chance that Democrats take the House at about 90–91% and give roughly a 75% chance of a blue wave. Investors view this outcome as negative for stocks and positive for Treasuries. Equity futures are trading lower, signaling that the S&P 500 may open with a gap down.

Probability dynamics for Democratic control of Congress

Stocks face both bad and good news. The bad one is that a near-term rout looks likely. Democrats are expected to tighten regulation of artificial intelligence technologies, and new state governors could impede data center construction and commissioning. The tech sector is already under pressure from concerns that rising AI spending will erode cash flows, and this political risk compounds the problem.

The good news is that slower profit growth among tech giants over the longer term could actually strengthen confidence in the sector's fundamentals. It may survive regulatory pressure and even benefit if Treasury yields fall, easing financing costs for highly leveraged hyperscalers. UBS Securities recommends buying stocks right after the midterms, arguing that favorable seasonality and the swift unwinding of long tech positions could set the stage for an S&P 500 rebound into year-end after months of compression.

Large-cap stock dynamics

History supports this play. The Sevens Report notes that since 1950, the broad market has never been lower 12 months after midterms. Morgan Stanley's research shows large-cap stocks typically rose by 15–16% six months after midterms. After the 2022 cycle, they gained about 22% in that period.

Thus, investors face a clear task: weather the storm and buy the dip. Skeptics of pure AI plays might instead favor names that use AI but have strong underlying businesses — Apple is a good example. Over the past month, Apple shares rose by over 1%, while many mega-caps fell by double digits. The iPhone maker is increasingly seen as a hedge against AI-sector trauma.

That said, management caution about margin pressure knocked Apple shares down, and NVIDIA reclaimed the top market-cap spot.

Technically, the S&P 500 formed an inside bar on the daily chart. An opening gap down can be used to buy rebounds from the support levels of 7,510 and 7,460.