Key Takeaways:
- Election results, drops in oil prices buoy market
- Cboe Volatility Index® falls well below 20
- Hyperscalers advance as chip stocks fall
Wow – what a day! The market reaction to the election results was fast and furious, with trading volume markedly higher as the so-called midterm “blue wave” provided what some would call a surprising rally.
Last night’s Democratic sweep of Congress with a Republican president is typically good news for the markets because divided government often means little change in economic policy. Why? Gridlock — both sides have trouble getting things done, something we’ve seen in prior administrations.
Plus, as we’ve said before, the market reaction is likely tied to a psychological factor: The market likes predictability and the election results provided that, no matter how traders may feel about the political outcome.
We also watched the yellow light turn green on the Cboe Volatility Index® (VIX®), which dropped 20.26% to 16.61, well below its cautionary level of 20.
The market also rallied as oil prices fell sharply amid hopes of a de-escalation in the Middle East. Energy is one area where both sides need to find compromise. WTI Crude Oil prices dropped nearly 8% to the mid-$88 per barrel range, the deepest one-day decline since May.
When the dust settled, the Dow Jones Industrial Average advanced by 3.03%, its largest one-day gain since April 2025. The Nasdaq Composite rose 1.44% and the S&P 500 Index increased by 1.58%.
The question now is what happens next for a market largely driven by heavy artificial intelligence (AI) investment and buildout. Many Democratic governors who won elections yesterday campaigned on a promise to slow new data center builds, potentially opening the door to more regulatory scrutiny or moratoriums. Data trade stocks got caught up in the fear, with Nvidia falling 3.17%, Intel dropping 3.77%, Taiwan Semiconductor falling 2.24% and Broadcom losing 2%.
On the flip side, slowdown fears might help the hyperscalers that already have some data centers up and running or are deep into construction. Many feel this will help them “build a moat” around their business. Microsoft and Amazon both posted gains of over 6% while Apple rose 5.3% higher and Alphabet added 3.2%. Apple again took the $5 trillion market capitalization title away from Nvidia, whose market cap is $4.82 trillion. Microsoft tapped a new high, hitting a $4.18 trillion market cap.
On the lighter side of trading today, investors shook off McDonald’s misses in revenues and same-store sales for the third quarter, apparently focusing instead on a beat in earnings per share and hopes that a turnaround strategy focused on a new approach to value pricing is working. The company said that though U.S. same-store sales fell 0.2% in the quarter, traffic and sales improved as the quarter progressed. Shares rose 6.5%, its largest one-day increase since April 2002.
Sticking with the who-doesn’t-love-a-good-milkshake talk, Shake Shack reports third-quarter earnings before the bell. Same-store sales and margin results are likely top of mind for most investors. An 11% move is priced in either direction, with the 81 calls and 67 puts expiring on Friday as the most active lines.
Happy Trading!
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