Global stocks and the dollar declined as traders bet Democratic victories in Tuesday's US midterm elections could impede AI infrastructure construction. The infrastructure expansion has played a central role in economic growth. Investors said the scale of Democratic gains and state-level victories in AI hubs such as Texas were likely to delay new data centres and could bring additional industry regulation.
Nasdaq 100 futures indicated a 2.1% decline at Wednesday's New York opening. S&P 500 futures lost 1.2%. Stoxx Europe 600 futures declined 1.3%. Japan's Nikkei 225 dropped 4.5% to a level last reached in May as Asian stocks dependent on US demand for AI chips fell. South Korea's Kospi lost 3.4%.
The dollar declined 0.5% against a basket of trading partners' currencies, reaching the lowest level in more than a month. Investors bet that the changed political environment could threaten US economic growth.
The election is expected to give Democrats majorities in both congressional chambers while Republican Donald Trump remains president. Divided government usually produces Washington gridlock that benefits financial markets. However, JPMorgan Asset Management portfolio manager Priya Misra questioned whether Democrats might introduce AI regulation despite that usual advantage for stocks. Misra said bipartisan resistance to data centres, combined with the economy's and stock markets' dependence on AI, raised concerns about the effect on equities.
Investors concentrated on state-level contests in Texas and Ohio before the election because governors control zoning and permitting and can suspend data centre construction. Democratic victories in both states on Tuesday prompted traders to consider a possible slowdown in construction. Robert Tipp, PGIM's head of global bonds, pointed to the Nasdaq's movement and falling rates as evidence of the impact. Tipp said AI was generating substantial supply pressure and described the market response as a "knee-jerk reaction".
US equities had faced selling pressure for weeks before the election as investors doubted whether AI spending could be sustained. The Nasdaq 100 reached records in October before falling nearly 10% and entering correction territory this week.
SoftBank shares dropped 9.1% amid declines in Asian companies connected to US technology. SoftBank owns roughly 13% of OpenAI. SK Hynix shares fell 6.5%. Samsung Electronics shares lost 5.9%. SK Hynix and Samsung Electronics are the largest producers of AI memory chips worldwide.
William Bratton, BNP Paribas's head of Asia-Pacific cash equity research, said Asian markets struggle to process US political risks and developments. Bratton said Democratic results were exceeding even the expectations of people who had anticipated Democratic victories.