Democrats Sweep Congress, and 80 Years of Market History Points to Gains Ahead

Democrats won control of both the House and Senate in the November 3 midterms, creating a divided government with President Donald Trump starting in January 2027, and stocks initially rallied before a sharp tech-led selloff. The Dow posted its biggest gain of the year the day after the election, but the tech-heavy index plunged 5.56% on November 5 as investors priced in tighter AI regulation, with the VIX fear gauge jumping to 28.18 from 16.61. Historically, the S&P 500 has risen in all 20 completed 12-month periods after midterms since 1946, averaging 14.7% gains, and the nine instances of a Democratic Congress with a Republican president produced an average 16.2% increase. AI companies now make up over 30% of the S&P 500, and Democrats may push for stricter regulation of data center energy use, with the Department of Energy projecting data centers could consume up to 12% of U.S. electrical demand by 2028. Key signals include committee leadership in January, cloud companies' capital spending plans, and whether the VIX drops below 20, while the economy grew at 3.4% annually in Q3 and the 10-year Treasury yield has fallen to 4.84%.