WHAT HAPPENED AT THE POLLS
Let's start with the basics. Democrats won the House and also took the Senate away from Republicans. And the most striking example was Texas. James Talarico defeated Ken Paxton, becoming the first Democratic senator from Texas in nearly four decades. Gina Hinojosa also defeated Governor Greg Abbott, who had been in office since 2015. She is Texas's first Democratic governor since 1995.
But that's not all. Democrats picked up Senate seats in Ohio, South Carolina, Iowa, and North Carolina. They also won the governor's race in Nevada. By Wednesday morning, only two Senate races remained undecided, in Alaska and Mississippi.
There were also several historic firsts. For the first time, five Black governors will serve simultaneously. Abdul El-Sayed from Michigan will become the first Muslim senator. And Deb Haaland will become the first Native American woman to serve as governor.
"So why did all this happen?"
According to CNBC, many voters pointed to tariffs and the war in Iran as the reasons their financial situation had deteriorated. Even Vice President JD Vance wrote: "The reason we lost is the war."
Corruption was also among voters' biggest concerns. In CNBC's poll, 69% said the benefits were going to the wealthy.
But let's look at the other side as well. Kyle Bass, a Republican donor, said Texas turned blue partly because of money coming from Democratic donors outside the state. He also argued that Republicans could hardly have chosen a worse candidate than Paxton.
And what happens next?
House Speaker Mike Johnson announced that he would not seek to remain the Republican leader in the House. Trump said he was "absolutely willing" to accept the results and would work with Democrats on many issues.
At the same time, however, he posted a red hat on Truth Social bearing the word "VETO." He also told Fox News: "They'll send me ridiculous things, and I'll veto them."
THE MARKET'S INITIAL REACTION
Now let's move on to the second part: the markets.
Before Wall Street opened on Wednesday, Dow futures were up nearly 900 points. S&P 500 futures were up approximately 1%, while Nasdaq-100 futures gained around 0.5%.
And at the closing bell?
The Dow finished up 1,569 points, a gain of 3.03%. The S&P 500 rose 1.58%, while the Nasdaq gained 1.44%.
The dollar fell to its lowest level in a month, bond yields declined, and gold climbed.
And oil? Brent crude fell more than 4% overnight and ultimately closed down 8.19%, at $95.11 per barrel.
"So why are markets rising when the president's party loses?"
Andrew Slimmon from Morgan Stanley's asset management division put it simply: "Markets love gridlock. They don't like one party having too much power."
In other words, when the president belongs to one party and Congress is controlled by the other, passing major changes becomes much harder. Markets see that as a form of stability.
However, Carl Weinberg of High Frequency Economics pointed out that Democrats do not have a large enough majority to override a presidential veto.
And here's an interesting detail.
Trump posted on Truth Social that the stock market had "hit another record." Except that's not actually true.
According to FactSet, the S&P 500 remains 1.7% below its all-time high, the Dow is 2.7% below, and the Nasdaq is 6.6% below.
Of course, not everyone was celebrating.
Tesla fell 3.5% and SpaceX 3.8% before the market opened.
Musk spent at least $474 million on these elections. Of the 44 races targeted by his organization, Republicans were losing 29 and winning just 3, with the remaining 12 still undecided.
Trump Media, in which Trump owns a 41% stake, fell 11% before the opening bell and ultimately closed down 24.54%.
Meanwhile, the 50 biggest donors contributed $1.7 billion to groups supporting Republicans and $832 million to groups supporting Democrats. That's more than twice as much money going to Republicans.
AI stocks had a mixed performance.
Amazon closed up 6.12%, while Alphabet gained 3.25%. Nvidia, however, finished down 3.17%.
CNBC's Steve Sedgwick raised an interesting question. Could restrictions on data centers actually end up helping the tech giants? Could they give these companies an excuse to scale back the enormous capital expenditures that have been worrying investors?
WHAT CHANGES FOR WALL STREET
And this is where things get even more interesting.
Because the initial market reaction is a one-day story. The next two years are an entirely different matter.
First, Big Tech.
With control of the House, Democrats can launch investigations and summon corporate executives to testify.
Greg Casar has called for the CEOs of major AI companies to testify under oath. Robert Garcia, the likely incoming chairman of the Oversight Committee, was even more direct: "Get lawyers."
And as if that weren't enough, there's the data center issue.
In 41 local ballot measures across 10 states, approximately 24 proposals to restrict or block data centers appear to have passed, according to early results.
In CNBC's poll, 56% of voters said data centers played an important or decisive role in their voting decisions.
Why does this matter?
According to JLL, Texas is expected to become the world's largest data center market by 2030. And the state's new governor has pledged to introduce regulations for the industry.
For an industry betting trillions of dollars, increasingly financed with borrowed money, delays mean higher costs and revenue arriving later than expected.
Second, taxes.
Ron Wyden, who is expected to become chairman of the Senate Finance Committee, announced plans to push for a tax on billionaires.
He also warned executives from banks, insurance companies, and pharmaceutical firms that they would be under scrutiny.
Hakeem Jeffries, who is expected to become Speaker of the House, told CNBC that "capitalism is broken" in terms of how it works for ordinary workers and the middle class.
Even Uber CEO Dara Khosrowshahi argued that the tax system has so far favored capital over labor. He added that if capital gains were taxed at the same rates as ordinary income, investors would continue investing as usual.
And third, the debt ceiling.
In simple terms, this is the borrowing limit imposed on the US government. Raising it is something Congress must eventually address.
According to CNBC's analysis, this represents the biggest political risk for markets over the coming year.
And this time, the battle is expected to be tougher than ever.
Why? Because Democrats now hold the upper hand. This makes a final agreement more likely to involve increased government spending rather than spending cuts.
And all of this could create even more volatility in an already unstable bond market.
There is, however, one industry that doesn't seem particularly worried: cryptocurrencies.
Circle CEO Jeremy Allaire said the issue is bipartisan. As he put it, "Circle is purple."
IRAN, UKRAINE AND OIL
And one final issue: foreign policy.
The new Congress changes a lot, but not everything.
As Laurel Rapp of Chatham House explained, Trump will be "somewhat constrained" when it comes to investigations and oversight. But when it comes to foreign policy, he still has considerable freedom of action.
Democrats can vote to limit the war in Iran or cut off its funding.
But overriding a presidential veto requires a two-thirds majority in both chambers of Congress.
Trump, meanwhile, told the Financial Times that he wasn't planning an immediate new strike on Iran.
Holger Schmieding of Berenberg believes Trump will eventually reach a deal to reopen the Strait of Hormuz by 2027, as voters increasingly feel the impact of high fuel prices.
As for Ukraine, he believes there is a risk that Kyiv could be pressured into accepting a deal that favors Russia, although he considers that scenario relatively unlikely.
