US midterm elections triggered sharp swings in stocks, oil, Treasury yields and the Dollar last week, but did not settle any of the four trends. Tech shares sold off on AI investment concerns, Brent dropped 13.6%, and a strong jobs report lifted expectations for a December Fed hike.
The US midterms set off sharp swings across stocks, oil, Treasury yields and the Dollar last week, but they did not settle any of the four trends, which were already forming before the vote.
Over the week, the Nasdaq Composite lost 3.37%, the S&P 500 declined 2.68%, and the Dow fell 0.93%. Meanwhile, Brent crude plunged 13.6% on a CFD basis, and the US 10-year Treasury yield declined 7.4bps to 4.859%.
AI concerns turn midterm relief into a technology-led selloff
The Democratic victory in both chambers of Congress initially supported a sharp equity rebound, and the Dow surged 3.03% on Wednesday. The recovery proved short-lived.
On Thursday, Nasdaq plunged 5.52%, while the Philadelphia Semiconductor Index collapsed 12.2%. The Magnificent Seven collectively lost more than $1 trillion in market capitalization.
Investors are questioning whether the capital committed to computing infrastructure can generate sufficient returns. Reuters reported that CoreWeave's five-year credit-default-swap spread reached a record, while SoftBank's rose to a four-year high. The VIX rose to 25.63 by Friday, compared with 19.41 a week earlier.
Oil's war premium retreats, but Hormuz normalization remains distant
Brent fell from 113.41 to 97.98 over the week on the TradingView CFD series, while WTI lost 12.2% to 90.35. Wednesday's plunge was closely associated with expectations that the Democratic election victory could increase pressure for a negotiated settlement with Iran. However, Monday's 8% Brent decline had already shown that the repricing of geopolitical risk began before the vote.
Washington and Tehran have yet to bridge their differences over Iran's nuclear programme, while maritime security incidents continue to threaten shipping through the Strait of Hormuz.
Strong payrolls revive Fed hike expectations
Friday's employment report changed the picture. US nonfarm payrolls increased 165K in October, exceeding the ActionForex consensus of 56K, and unemployment declined from 4.2% to 4.1%.
CME FedWatch subsequently showed the probability of a December 9 hike rising to 76.3% at Friday's final observed reading, compared with 66.9% on Thursday. The Dollar Index, which had fallen 0.39% through Thursday, surged 0.70% on Friday and ended the week up 0.31% at 102.279.
The next sustained move will depend less on the election result itself than on whether geopolitical developments, Fed repricing or further deterioration in AI-related investments becomes the dominant market influence.
Source: ActionForex
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