If there is a major Democratic victory, there will be headwinds for US stocks, and AI investment will be cold water - midterm elections

[New York Current Affairs] In the U.S. midterm elections scheduled for the 3rd, there is a growing expectation that the opposition Democratic Party will regain the majority in the House of Representatives, and the Democratic Party will also be looking to gain a majority in the Senate, which is expected to be a close race. In the financial market, a scenario in which the Democratic Party wins by a landslide is expected to create stronger headwinds for the U.S. stock market and throw cold water on artificial intelligence (AI) investments such as data center construction.

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Market participants are predicting the possibility of a democratic breakthrough due to US President Donald Trump's slumping approval ratings. Nomura Securities puts the probability that the Democratic Party will control the House of Representatives at 90%, and the probability that it will control both houses of Congress at 60%. One American economist has described a ``blue tsunami'' as the blue color of the Democratic Party swallows up the red color of the Republican Party.

However, US financial giant Morgan Stanley points out that if the Democratic Party wins a landslide and forms a strong majority, ``the uncertainty associated with a change in leadership could create a headwind for the stock market.'' We predict that the situation will be volatile, similar to what happened when the then-opposition Republican Party took control of the House of Representatives in the 2022 midterm elections.

The results of the midterm elections are likely to have an impact on the future of AI investment, which has supported the growth of the US economy. The most negative impact is likely to be in a scenario where the Democratic Party, which has recently taken a tough stance on data center construction, wins by a landslide.

Furthermore, the stance of each state and local government regarding data center construction holds the key, and the results of gubernatorial elections will be closely watched. If a candidate who advocates suspending construction permits and tightening environmental regulations wins, it could pose an "imminent threat" to the AI ​​market (according to a British research firm).

However, it is said that there is a ``rule of thumb'' in the market that suggests stock prices tend to rise after midterm elections. An official at a Japanese securities firm is optimistic, saying, ``Even if concerns about AI investment increase, corporate performance remains solid and the economy is strong.The market will likely rise in the medium to long term.''