The Midterm Result Repriced Stocks, Oil And Bonds At Once

Democrats won control of both chambers of Congress on Tuesday, and Wednesday was the session where every market put a price on it: the Dow rose 3.03%, crude oil fell about 8%, and government borrowing costs came down across the curve. The same day, the companies that sell electricity and rented computing to artificial-intelligence data centers fell hard, which Axios tied to voters approving dozens of local bans on new construction. Euro-area inflation reached 4.0% in October on a first estimate, and energy did almost all of it.

Fast Facts

• Private employers added a net 86,000 jobs in October, more than the 75,000 economists had expected, the payroll processor ADP said (Read More)
• At 54.5 in October against 54.9 in September, the Institute for Supply Management's survey of service businesses still points to growth, since any reading above 50 means the sector grew (Read More)
• Qualcomm's revenue fell 8% from a year earlier as demand for smartphone chips stayed weak, though its automotive business grew (Read More)
• Next year's Social Security cost-of-living adjustment of 3.6% will add roughly $75 a month to the average retirement benefit (Read More)
• Four people used an artificial-intelligence agent to book an Uber during the company's busiest week last quarter, Uber said (Read More)
• American imports exceeded exports by $105 billion in September, a gap 0.7% narrower than August's, when economists had expected it to widen (Read More)

Global News

• Toyota raised its full-year earnings forecast after operating profit climbed 34%, which the carmaker credited to a weaker yen and cost cuts (Read More)
• Brazil's central bank left its benchmark unchanged after five straight cuts as inflation drifted away from target, a week after the Federal Reserve held steady with both dissenting votes wanting a rise (Read More)
• Indian government bonds rose for a fourth straight session as crude prices sank after the American midterm elections (Read More)
• Factory orders in Germany rose 4.4% in September, a rebound in Europe's largest economy (Read More)

Democrats Won Both Chambers, And Wednesday Put A Price On It

The midterm elections of Tuesday, November 3 gave Democrats control of both the House of Representatives and the Senate, with Axios reporting they were on course to gain as many as 40 House seats. Yesterday's briefing covered the overnight projections and the round trip before Wednesday's opening bell. Wednesday was the session where the finished result showed up in prices, across almost every major market at once.

The Dow Jones Industrial Average closed Wednesday at 53,356.12, up 1,569.40 points, or 3.03%; the S&P 500 closed at 7,688.62, up 119.70 points, or 1.58%; and the Nasdaq Composite added about 1.4%. Crude oil went the other way, with Brent and WTI, the two benchmark grades traders quote, each falling about 8%. A Reuters market column had gold up 3.5%, back above $4,000 an ounce, and the dollar at its lowest since September 30. Government borrowing costs fell too. On Treasury's yield curve, the daily record of what it costs the government to borrow for a given length of time, the two-year note stood at 4.58% at Wednesday's close, down 3 hundredths of a percentage point, what traders call 3 basis points. The ten-year note stood at 4.90% at that close, its lowest since September 9.

Why would a congressional result move the price of a barrel of oil? MarketWatch tied the whole day to optimism around a quicker end to the Iran war now that Democrats control Congress, and Axios quoted Ben Cahill of the Atlantic Council saying the oil drop was "entirely about the U.S. election and the belief that Trump will de-escalate rather than escalate on Iran." In general, oil and bond yields are connected through expected inflation. Fuel is an input to nearly everything grown, made or shipped, so cheaper crude tends to go with expectations of slower price increases, and anyone lending money out for years asks less compensation when they expect inflation to be lower.

One session is not a settled view, and the analysts quoted on Wednesday said as much. Axios quoted Raymond James analyst Pavel Molchanov saying "for oil prices to sustainably move lower, a durable off-ramp is needed," and that it is unclear whether Vice President JD Vance's comments signal a more dovish, meaning less confrontational, stance toward Iran. The Wall Street Journal reported oil futures, the contracts to buy or sell crude later at a price set now, sank to two-month lows. France24 reported investors shunned artificial-intelligence stocks and bought government bonds, so the gains were not shared evenly.

Sources: Reuters via Investing.com · MarketWatch · Axios on oil · Axios on the result · Wall Street Journal · France24 · U.S. Treasury · our briefing of November 4

Power And Computing Stocks Fell Wednesday After Tuesday's Data-Center Votes

While the Dow climbed about 3% on Wednesday, the companies that sell electricity and rented computing to artificial-intelligence data centers, which are warehouse-sized buildings full of computers, went the other way. CNBC's midday snapshot of Wednesday's biggest movers, taken mid-session rather than at the closing bell, showed CoreWeave down 9%, Iren down 11% and Vistra down 13%. Axios reported the reason: on Tuesday voters approved dozens of data-center moratoriums, meaning temporary bans on new construction, and elected candidates who favor slowing a $10 trillion build-out. Texas alone accounts for 41% of the new U.S. data-center capacity expected in 2028, according to the research firm SemiAnalysis, and Axios notes Democrats won the next three states on that list too. Texas governor-elect Gina Hinojosa campaigned on keeping a moratorium in place until the state passes rules on water, electricity, air and property rights.

Here is why a ballot result turns up in these prices first. A company that sells electricity or rented computing to data centers is worth what those data centers will pay it, so a rule about whether a data center may be built at all reaches that company's value long before it reaches anything a customer sees. Axios reported that nearly two-thirds of the capacity planned for 2028 could face delays, while adding that most political analysts do not expect Democrats to block construction permanently. Macquarie analysts told Investing.com that Hinojosa's election may foreshadow stricter rules in Texas. MarketWatch, though, reported that some analysts called the selling in energy names including Vistra an "excessive knee-jerk" reaction, arguing those stocks were already under pressure and that newly elected officials may not slow the build-out as much as feared.

For voters, this argument arrives on a monthly bill. Axios called it an energy election: high gasoline prices, record diesel costs and rising power bills fed the discontent. The selling carried overnight into the chipmakers that supply those buildings, with Investing.com reporting Foxconn in Taiwan down more than 3% and TSMC off 0.88%. By 3:03am ET Thursday the split showed in pre-market trading: Investing.com had Nasdaq 100 futures down 1.0% while Dow futures were up 0.3%. We have covered this build-out's cost before as a spending story; TechCrunch reports the opposition crossed party lines on Tuesday.

Sources: Axios on the data-center vote · Axios on energy costs in the races · CNBC midday movers · MarketWatch · Investing.com · TechCrunch · our briefing of October 23

Energy Prices Pushed Euro-Area Inflation To Double The European Central Bank's Target

Consumer prices across the euro area were 4.0% higher in October than a year earlier, according to a flash estimate, the quick first reading Eurostat publishes before every national figure is in hand. That is up from 3.8% in September, and double the 2% inflation the European Central Bank aims for. Nearly all of the increase sits in one place. Energy prices were 20.8% higher than a year earlier, after 18.9% in September. Core inflation, which leaves out energy, food, alcohol and tobacco to show the slower-moving trend underneath, held at 2.5%, matching both September and what economists had forecast. Prices overall rose 0.4% on the month, slower than September's 0.6%. Eurostat publishes the final October figures on November 18, and those can revise any of this.

The gap between 4.0% and 2.5% is the whole story. Energy is only about 9% of the euro-area consumer basket, the list of goods and services statisticians price every month to track what a typical household spends, and that one slice carries almost all of the distance above target. The split matters, because energy is the hardest line in a family budget to opt out of: the commute to work is the same length whether fuel is cheap or expensive. It is also the one thing a central bank does not produce. Crude is priced in a global market and reaches a household through filling stations and heating bills long before it touches anything inside the core measure. Wednesday's roughly 8% fall in Brent and WTI crude, which today's lead story covers, is worth holding next to this release for one reason: October's figures record what Europeans had already paid, in the weeks before that move.

Sources: Investing.com · WSJ

What To Watch

Reporting after today's close:

• EOG Resources (EOG) is the first large American oil producer to speak since crude fell this week, with the average analyst estimate at $4.45 in earnings per share against $2.71 a year ago.
• Airbnb (ABNB) is expected at $2.86 against $2.21 and Cloudflare (NET) at $0.02 against a one-cent loss, among 612 companies scheduled today.

Tomorrow and into next week:

• Vistra (VST) is expected before Friday's open at $2.77 in earnings per share against $1.75 a year ago, the morning after the move above. Berkshire Hathaway (BRK.B) is expected at $5.91 against $6.26, among 117 scheduled Friday reporters, and Federal Reserve Vice Chair for Supervision Michelle Bowman speaks on supervision and regulation the same day.
• Monday brings 246 reporters, including Constellation Energy (CEG) at $3.90 against $3.04 and Occidental Petroleum (OXY) at $1.43 against $0.64, two more energy companies reporting into the same oil move.
• The minutes of the October 27-28 Federal Open Market Committee meeting are due November 18, and Eurostat's final October inflation reading lands the same day. On November 25 the Bureau of Economic Analysis publishes Gross Domestic Product, Personal Income and Outlays, and Corporate Profits.
• Every earnings figure above is an estimate rather than a result, and the new Congress is not seated until January.

The Classroom Takeaway

Wednesday is a clean example of something worth carrying into any market: one piece of news moved the price of oil, of a government IOU and of a share in different directions on the same afternoon, because each price answers a different question. A headline inflation figure of 4.0% sitting on top of a core figure of 2.5% is the harder call, and students can try making it themselves in our Run the Fed simulation.