London’s FTSE 100 confounded expectations on Wednesday, rising at the open as investors looked beyond a bruising Asian market sell-off and assessed the implications of the Democrats’ sweeping victory in the US midterm elections.
The blue-chip index climbed 0.2 per cent, reversing futures forecasts that had pointed to a 0.6 per cent decline.
Gains in mining and energy stocks helped offset concerns that a Democratic-controlled Congress could tighten regulation of the artificial intelligence industry and unsettle the technology investment boom.
The contrasting performance followed a sharp overnight retreat in Asia, where technology shares came under pressure. Japan’s Nikkei 225 fell 3.6 per cent to its lowest level since early May before recovering some of its losses, as investors reassessed the political and regulatory outlook for US technology companies.
“Rebounding commodity prices and a rally in banks has helped the FTSE 100 to claw back some of yesterday’s heavy losses, as markets digest the overnight election news from the US,” said Chris Beauchamp, chief market analyst at IG.
Mining and precious metals companies led the London market higher. Fresnillo rose 3.8 per cent, while Endeavour Mining gained 3.2 per cent, benefiting from firmer commodity prices and demand for defensive assets. The performance highlighted the divergence between London’s resource-heavy index and technology-focused markets elsewhere.
The Democratic sweep of both the Senate and House of Representatives has raised expectations of more stringent scrutiny of artificial intelligence, adding a fresh political risk to a sector already facing questions over the scale of its spending and the sustainability of its earnings growth.
Investors have spent months debating whether the enormous sums being committed to AI infrastructure can generate sufficient returns. The prospect of tighter regulation, particularly around energy consumption and access to electricity, has introduced another uncertainty.
“These midterm results could support a further rotation from technology to non-technology pockets of the market,” said Ipek Ozkardeskaya, senior analyst at Swissquote.
She added that the shift could coincide with a “slowdown” in earnings growth among the Magnificent 7, the group of dominant US technology companies that has driven much of the recent market rally.
Deutsche Bank analysts said the overnight weakness in US equity futures had been concentrated in technology stocks, reflecting expectations that a Democrat-controlled Congress could impose stricter oversight of AI.
“The AI trade has spent months worrying about financing costs. Now it may have to start worrying about the politicians controlling the power grid,” said Stephen Innes, head of market strategy at SPI Asset Management.
The initial market reaction was far from uniform. Russ Mould, investment director at AJ Bell, said investors were struggling to interpret the consequences of the election result, with an early sell-off quickly giving way to gains in some markets.
Gold rose 2.7 per cent to $4,038 an ounce as investors sought protection against political and economic uncertainty. Mould said the increase suggested investors had added “a little protection” as a “just in case” precaution.
The metal may also have benefited from concerns that Democrats could pursue higher government spending now that they control Congress, he added.
“The big risk is uncertainty around how Trump could act in the coming months following such a result,” Mould said.
US equity futures also recovered during the session. Futures tracking the S&P 500 pointed to a 0.2 per cent gain at the opening bell, while those linked to the Dow Jones Industrial Average were up 0.5 per cent.
Oil prices offered another indication of how investors were attempting to balance political risk against the prospect of a changing US foreign policy. Brent crude edged 0.3 per cent higher to $103.88 a barrel, after earlier slipping below $103 as traders assessed the progress of diplomatic efforts between Washington and Tehran.
Qatar’s foreign ministry spokesperson said the two sides were considering fresh proposals from mediators intended to narrow their differences. Negotiations have continued despite US strikes against Iran, which Washington described as “defensive”.
Mould suggested that higher oil prices could reflect expectations that Mr Trump might turn towards foreign policy, where his authority faces fewer domestic constraints, and increase pressure on Tehran.
Beauchamp, however, said the easing in crude prices pointed to tentative optimism among investors.
“With oil prices edging down again there appears to be a cautious outbreak of risk appetite, in hopes that the usual post mid-terms rally can get underway in earnest,” he said.
The political timetable in Washington is now central to the market outlook. The Trump administration has until January 3 to push through legislation before newly elected members of Congress take their seats. After that, negotiations are likely to become more difficult, with government spending and the debt ceiling expected to dominate the agenda.
Mould said the “real horse-trading” would begin once the new Congress convenes. Medicaid, defence, energy, AI, cryptocurrency and banking regulation are among the issues likely to feature prominently, while attention is already beginning to turn towards the 2028 presidential election.
Historical patterns offer some reassurance to investors. Mould noted that the third year of a US presidential term has typically produced the strongest equity returns, with average gains in double digits. Only one third year since the second world war has delivered a negative result.
But he warned that the historical precedent should not be treated as a guarantee. Corporate earnings forecasts and market valuations are already elevated by historical standards, leaving less room for disappointment.
The starting point, he said, was “not as promising as with some other presidencies”.
In London, the more cautious mood was also reflected in government bond markets. The yield on 10-year UK gilts eased from 5.26 per cent to 5.23 per cent, indicating a modest rise in bond prices as investors weighed the implications of the political upheaval.
For now, markets appear to be resisting a straightforward verdict on the election. The initial reaction has been a rotation between sectors rather than a wholesale retreat from risk. Whether that resilience lasts will depend on how quickly Washington’s new political balance translates into changes in regulation, spending and foreign policy.
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