Democrats took both the House and the Senate in the US midterm elections on November 3. The next day the Dow rose 1,569 points (+3.03%), its biggest gain since April 2025. The same day the PHLX Semiconductor Index fell 3.1%, and Korea's KOSPI was down 4.00% at around 11 a.m. the following morning.
On the index level it looks like an "election rally," but underneath it was closer to money rotating between sectors. This post records what rose and what fell, which explanations held up and which didn't, and what the automated trading system this site tracks (currently in a paper-trading validation stage) did that day.
US figures are Nov 4 closes. Colors follow the Korean convention used across this site: red = up, blue = down.
The result: what is settled so far
Blue and red here are party colors. As reported on the evening of Nov 4 (US Eastern); counts may change.
- Senate: Democrats flipped seven seats (Kansas, Iowa, Texas, Ohio, Maine, North Carolina, South Carolina). Mississippi is within a few dozen votes, and Alaska's ranked-choice count will take longer.
- Governors: Democrats secured at least 28 governorships, flipping five Republican-held states (Texas, Georgia, Ohio, Iowa, Nevada).
Some lines stay out of reach even once the seats are final. Overriding a presidential veto takes 67 Senate votes and 290 in the House. Even if Democrats win both undecided Senate seats, they reach 56. That is why BofA made "gridlock" its base case. In a CNBC interview, President Trump said he could work with Democrats but all but ruled out rolling back tariffs.
Markets on November 4: money moving beneath the index
Split by sector, the picture looks different from the index.
S&P 500 sector ETFs, Nov 4. By Reuters’ sector index count, 2 of 11 fell; on an ETF basis Technology (XLK) was roughly flat.
The gaps were wider at the stock level.
Nov 4 closes. Every group uses the same scale, so bar lengths compare directly.
The same "AI" trade moved in opposite directions. Companies that build data centers and those that power them sold off hard, while the companies that pay for them rallied. The reading was that slower construction eases the spending burden on cash-rich Big Tech. CNBC also reported that Apple got an extra lift from expectations of easing memory prices. Easing memory prices, read as good news for Apple in the US, are the opposite for Korean memory makers.
Why it moved: four explanations and how well each holds up
1. Data center regulation fears — the most direct link. Texas's governor-elect campaigned on a moratorium. One estimate puts Texas at about 25% of planned US capacity and all states that might tighten rules at about 45%. Allianz put the capacity under governors who back a pause at 47GW. An NBC exit poll figure showed 76% of respondents opposed new data centers in their community. BofA, however, said these policies may "not derail" the AI buildout but could make it slower and more expensive, and saw the risk coming from state and local governments rather than Washington. For now these are campaign pledges and worries, not regulations in force.
2. Uncertainty lifted — the most cited, but conditional. Many analysts credited the rebound partly to President Trump saying he would accept the results. The VIX falling 20% in a day fits that direction. Deutsche Bank added the caveat that the effect only holds if the president sticks to that position.
3. The oil plunge — overstated as an election effect. The explanation offered was that Vice President Vance blamed the Iran war for the defeat, raising hopes the war would end. But WTI was already falling before the vote. It dropped 7.7% from $104.12 on October 30 to $96.09 on November 3, reportedly after President Trump said there were no plans to resume airstrikes. The further drop on November 4 came on top of that trend.
TS Lombard pointed to the limits of Congress's power over war, citing the 2006 Democratic Congress's Iraq withdrawal-deadline bill that was blocked by veto.
4. Hopes for fiscal discipline — right direction, small for one day. The argument is that divided government makes bigger deficits harder, so yields fell. But a 6bp move on a day oil fell 8% cannot be attributed to fiscal factors alone, and even after the drop the 10-year sits near 4.9%. Defense stocks reportedly fell on worries that the $1.5 trillion defense budget request could stall, and solar rose on hopes of extended tax credits.
Earnings that came out the same day (AMD, Novo Nordisk and others) are also in the mix. Not all of one day's moves can be pinned on the election.
Korea read it as bad news for chips, not good news
On November 4, the KOSPI fell as low as 5,421.72 (-4.02%) intraday as votes were counted, then recovered to close at 5,683.80 (+0.62%). Foreign investors were net sellers of KRW 2.502 trillion. That day Hanwha Solutions (+18.64%), Samsung SDI (+11.57%), OCI Holdings (+10.38%) and LG Energy Solution (+5.03%) jumped. That matches the direction of US solar strength, but I found no basis for saying the election caused it.
On November 5, following the drop in the PHLX Semiconductor Index, the KOSPI fell to 5,456.60 (-4.00%) around 11 a.m. At the same time SK hynix was down 7.49% and Samsung Electronics 5.62%. Hyundai Motor (+5.82%) and KB Financial (+5.61%), by contrast, were up as of 9:30 a.m. Because of how the index is weighted, when chips fall, the KOSPI falls, and there is little room for a rising Dow to carry over. That is why a US sector rotation showed up in Korea as an index decline. Closing figures are in the market close reports published afterward.
How has the S&P 500 done after midterms?
CNBC noted that the S&P 500 rose after every one of the 11 midterms from 1982 to 2022. I ran the numbers myself, excluding dividends.
Show next day, 1-month, 6-month and 1-year figures by year
| Election | Next day | 1 month | 6 months | 1 year |
|---|---|---|---|---|
| 1982 | +3.91% | +0.97% | +18.07% | +18.95% |
| 1986 | +0.15% | +2.78% | +20.01% | +1.88% |
| 1990 | -1.80% | +5.60% | +21.47% | +24.74% |
| 1994 | -0.05% | -4.34% | +12.61% | +25.91% |
| 1998 | +0.70% | +3.54% | +19.91% | +21.97% |
| 2002 | +0.91% | -0.97% | +0.53% | +14.90% |
| 2006 | +0.21% | +1.77% | +8.90% | +6.65% |
| 2010 | +0.37% | +2.34% | +12.88% | +2.07% |
| 2014 | +0.57% | +2.97% | +3.77% | +4.48% |
| 2018 | +2.12% | -4.44% | +4.57% | +11.97% |
| 2022 | -2.08% | +3.54% | +7.90% | +13.56% |
| Average | +0.46% | +1.25% | +11.87% | +13.37% |
| Up | 8/11 | 8/11 | 11/11 | 11/11 |
It is true that the index was higher a year later all 11 times. But set against a baseline, the effect looks weaker. Buying on any day since 1982, the index was higher a year later 80.1% of the time, with an average gain of +11.08%. At that rate, an 11-for-11 streak would happen by chance about 9% of the time, and the difference in averages is about 2.3 percentage points. Eleven data points are not enough to make "stocks rise after midterms" a rule.
The two years in which the president's party lost both chambers are an even smaller sample. 1994 was +25.91% a year later and 2006 was +6.65%, and the year after 2006 brought the financial crisis. With two data points you cannot even say which way it points.
What to watch next
- Final counts in Mississippi and Alaska — Alaska's ranked-choice tabulation is scheduled around 15 days after the election. Whether the Senate ends at 54, 55 or 56 seats does not cross the veto line, but it changes the margin for next year's confirmations and budget talks.
- The actual text of a Texas moratorium — whether the pledge becomes a bill, whether it only blocks new projects, and whether it is conditional. JPMorgan traders said the Texas worries were overdone, but that it was too early to call an "All Clear."
- Big Tech capex guidance — this reaction treated slower construction as good for Big Tech. It ties directly to the demand outlook for Korean memory, and next earnings season's guidance will test it.
- The new Congress on January 3, 2027, and the debt ceiling — HSBC said the debt ceiling will need to be resolved within 2027. That is when markets will reprice shutdown risk.
- Whether oil's drop lasts — it rests on expectations, so it could reverse if no real action on Iran follows. TS Lombard warned against underestimating "a president known for pushing ahead."
What this system did that day
This site publicly records an automated trading system in a paper-trading validation stage. Elections and politics are not inputs to its entry decisions. Its market regime is set from market data such as volatility and exchange rates, and news sentiment is not connected to the entry gate.
That showed plainly this time.
| Item | SMCI (Super Micro) |
|---|---|
| Entry | Nov 4, just after the open (9:30s US Eastern) · 308 shares @ $31.49 (paper-trading account) |
| Scanner conditions | Score 90 · RSI 39.2 · 1-month -27.3% · volume 1.63x |
| Market at decision time | Regime CALM · VIX 18.42 |
| Same-day result | Close $29.60 · -5.70% on the day · -6.00% from entry |
On the day data center stocks were hammered, the system bought an AI server maker right after the open. It acted according to its rules; this was not a bug. According to Yahoo Finance, earnings (EPS $1.81 vs. $1.23 expected) had been released after the previous day's close, so the earnings gate was cleared, and the stock met the scanner's conditions for picking pulled-back names. But whether that pullback was caused by the election news is a question the system does not ask.
I don't call that a flaw right away. SMCI's decline mixed the prior day's earnings reaction with sector selling, so the causes can't be separated, and changing a rule over one trade would be the same after-the-fact curve fitting this project has rejected so far. This trade is still open, and its target and stop are published here before the outcome. I will add the result to this post when it closes. (November 7: the outcome has been added below.)
Other records from the same period:
- CTSH (entered Nov 2 US Eastern, 151 shares @ $65.16) — closed at $65.78 on November 4, +3.06% on the day and +0.95% from entry. It moved with the broad market, not with the data center group.
- Korean market — no new entries through the 10:26 a.m. log on November 5. The direct reason was breakout volume falling short, and rotation was blocked by a crash gate that watches the KOSPI's 20-day realized volatility (about 54.6). Neither rule was built in response to the election.
For the record, this system has no proven edge yet. The second paper-trading account started on October 31, and these two trades are anecdotes, not a sample.
Outcome: SMCI was stopped out the next day (added November 7)
As promised, here is the result. The SMCI trade ended in a stop-out the day after entry.
| Item | Record |
|---|---|
| Entry | Nov 4, 09:32 US Eastern · 308 shares @ $31.49 |
| Exit | Nov 5, 09:38 US Eastern · 308 shares sold at market · quote at decision time $27.88 |
| P&L | -11.46% · about -$1,112 (before fees) · 9.7% of the account |
| High while held | $32.49, as observed by the system (the $37.67 target was never reached) |
On November 5, SMCI opened at $28.32, just above the $28.25 stop, and fell below it within minutes of the open. The system checks prices every two minutes; the 09:38 check caught the break below the stop and it sold at market. That was the day the PHLX Semiconductor Index fell 12.25%, its second-largest one-day drop since 1994. SMCI closed that day at $27.08 (-8.51%).
Three things are worth recording from this outcome.
1. There was a gap between the stop and the actual loss. Selling exactly at the stop would have meant a -10.29% loss. The quote at decision time was 1.31% below that. On a day when prices collapse quickly, this much slippage happens between a two-minute check and a market order. The $27.88 above is the quote when the sell decision was made; I have not re-verified the fill price against the broker's execution record.
2. The price rose the day after the sale. The November 6 close was $28.76, 3.16% above the sale quote and still 8.7% below the entry. A stop gives up one-day bounces in exchange for protection from bigger declines. One trade can't settle which side was right this time. The 14 Korean shadow-tracked positions stopped out over the same two days, and the historical 20-trading-day statistics after chip crashes, are covered separately in this post.
3. The question deferred above still stands. The system bought an AI server maker on the day data center stocks were hit, and was stopped out as sector selling continued. Looking only at the outcome, it is easy to say it "should have read the election news." But the principle of not changing rules over one trade stands too. Whether to add news inputs will be decided after enough records show whether the same pattern repeats.
Data sources. Index, ETF and stock closes and post-midterm returns were calculated directly from Yahoo Finance prices (S&P 500 price index; 1 month = 21 trading days, 6 months = 126, 1 year = 252). KOSPI and Korean stock values for November 5 are intraday prices around 11 a.m. KST. The system's fills and conditions come from its own trade logs and ledger. Election counts and institutional views were cross-checked against CNBC election live updates, NBC's uncalled races, CBS on Alaska, Reuters market close (via Yahoo Finance), Investing.com on institutional views, CNBC on investor implications, CNBC markets live, CNBC on yields, Herald Business (Korean) and Dailian (Korean). Where reports differed because of timing, both figures are given.
How this was written. A large language model (LLM) was used for research and drafting, and figures were checked against the sources above. This is the English edition of a post first published in Korean. It is not investment advice, and every trade mentioned is a record from the paper-trading validation stage.
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