The stock market sector rotation driven by the U.S. mid-term elections entered its second trading day, with global stock markets generally rising on Thursday. However, U.S. stock index futures showed mixed movements. Markets that were not favored by investors before and stocks that are more sensitive to economic cycles performed strongly, while chip manufacturers continued to face pressure.

As of press time, the Dow Jones futures rose by 0.64%, the S&P 500 index futures rose by 0.20%, and the Nasdaq futures fell by 0.50%.

MSCI Global stock indices rose by 0.1%, following a record daily increase in late July on Wednesday. The Euro Stoxx 600 index broke through its previous closing high, narrowing the performance gap between European stocks and the S&P 500 index since 2026. The London FTSE 100 index also surpassed its previous historical closing high. Mining and consumer stocks led the gains in the European market, while chip-related stocks such as ASML and STMicroelectronics declined.

Obvious capital rotation in the market trend

The rotation of funds in the Asian market has become more apparent. The stock markets of China and Australia have become some of the strongest in the region. At the same time, the stock prices of South Korea's Samsung Electronics and SK Hynix both plummeted by more than 7%. Investors are concerned that after the Democratic Party swept the U.S. midterm elections, the United States may tighten regulations on data center construction, thereby weakening the market demand for South Korean memory chips.

UBS's Wolf von Rotberg indicates that once the capital rotation trend triggered by the mid-term elections gradually comes to an end, the market may return to a trading pattern dominated by macroeconomic fundamentals.

On Wednesday, as clear election results boosted investor sentiment, major U.S. stock indices generally rose, with the S&P 500 index closing up 1.6%. However, tech stocks continued to face pressure as investors worried that the infrastructure construction of artificial intelligence ( AI ) might come under stricter regulatory scrutiny.

The Philadelphia Semiconductor Index fell by 3.1%, with a cumulative decline of 25% over the past month. In Texas and Georgia, some Democratic candidates who advocated for a pause in data center construction and made this an issue in their campaign platforms won the elections.

Deutsche Bank strategist Jim Reid stated: "In terms of the election results, although the Democratic Party's victory was larger than expected, the overall outcome does not differ significantly from what investors had anticipated beforehand."

He added, "From many aspects, the overall market rebound is in line with the typical mid-term election patterns we have emphasized before. After all, since World War II, in the past 20 U.S. mid-term elections, the S&P 500 index has risen without exception one year after the elections."

Selling chip stocks and buying bank stocks

European tech stocks have a relatively low weight in the overall market, while banks and pharmaceutical companies account for a larger proportion. These sectors saw significant gains on Thursday. Within the European tech sector, stocks related to the semiconductor industry generally declined, with ASML (ASML), Soitec, and Infineon (Infineon) experiencing declines ranging from 1.2% to 4%.

Asian markets faced more significant selling pressure due to their higher exposure to stocks related to AI. South Korea's KOSPI index fell by nearly 6%, approaching a seven-month low. Chip manufacturers account for a significant weight in this index.

Masahiko Loo, the chief fixed-income strategist at Tofu Investment Management Company, stated that the Democratic Party's control of Congress has raised market expectations for more stringent scrutiny of data center construction, power demand, and consumer costs. However, this does not mean that the Democratic Party can implement such policies without restrictions, as U.S. President Donald Trump still retains the veto power.

He stated, "Therefore, this 'blue wave' has increased the political risk premium for the AI industry in the United States, but it is not necessarily going to disrupt the overall AI capital expenditure cycle."

Meanwhile, renewable energy stocks, which have been under pressure from Trump administration policies over the past two years, have seen a rebound. The stock prices of Danish energy company Vestas ( Vestas ) and wind turbine manufacturer Vattenfall ( Orsted ) have risen by 2.6% and 1% respectively.

Candriam, the head of multi-asset investment, stated: "The market is undergoing a round of capital rotation. Some tech stocks have temporarily entered an adjustment phase, while the upward trend is spreading to more sectors. The assumptions behind this are that the growth rate of AI capital expenditure may slow down, the possibility of resolving the Iran conflict has increased, and energy prices are expected to fall further."

Tries to stabilize after a sharp drop in oil prices

After plummeting by more than 8% on the previous trading day, Brent crude oil stabilized around $95 per barrel. Oil prices tumbled nearly 9% overnight, falling below $100 per barrel for the first time in two months. So far this week, oil prices have fallen by about 20% in total, and are on track to record the largest weekly decline since April 2020.

Traders bet that, facing a Congress controlled by Democrats and the political pressure of Middle East conflicts driving up energy prices, the likelihood of the Trump administration further escalating the war with Iran is declining.

A significant drop in energy prices has driven up the bond market, which in turn has lowered the yield on U.S. Treasury bonds. The prices of longer-term U.S. Treasury bonds have continued to rise, while there has been little change in the prices of short-term Treasury bonds. The yield on the benchmark 10-year U.S. Treasury bond has fallen by 2 basis points to 4.87%.

In the foreign exchange market, the US dollar is generally weakening, and investors' attention has turned to the monetary policy decisions that the Bank of England will announce later on Thursday.

The market expects that the Bank of England will raise interest rates to cope with the inflationary pressures caused by soaring energy costs. However, the Bank of England may also counter to some extent investors' expectations that there will be several more rate hikes next year, in an attempt to curb market expectations for further tightening of monetary policy.

Gold breaks through 4100

As the US dollar and oil prices come under pressure, gold prices have broken through $4,100. Over the past two trading days, gold prices have risen by 5% in total, marking the largest two-day increase since early April. Lower bond yields are generally favorable for gold, as gold itself does not generate interest; at the same time, a weaker US dollar also makes gold more affordable for buyers holding other currencies.

Rotberg indicates: 'If the growth in AI capital expenditure is truly threatened, then the performance of the stock market in the remainder of this year will face challenges.' At the same time, 'a further general weakening of the US dollar is likely to be beneficial for gold and other physical assets.'

Fierce debate on Wall Street over whether AI stocks are already oversold; Goldman Sachs says a Democratic victory could actually boost capital spending.

In response to the sharp decline in AI concept stocks, there are divergent views among institutions. Goldman Sachs believes that AI stocks have been "almost completely sold off" recently, with valuations significantly falling. Once the uncertainty surrounding elections subsides, the portfolio structure may improve, which could actually prompt tech giants to accelerate their data center investments in advance to avoid future regulatory changes; meanwhile, JPMorgan Chase warns that concerns about AI financing and commercialization may limit short-term rebounds.

At the market level, with the elections coming to an end, the high volatility or sustainability issues reflected by VIX are expected to subside. If volatility rapidly declines, the main indices, of which AI accounts for nearly half of the weight, are likely to benefit.

Focus on Individual Stocks

After the fast-food chain company Shake Shack released its third-quarter financial report, its stock price rose by 3.8%. The adjusted earnings per share were 40 cents, higher than the 35 cents per share forecast given by the London Stock Exchange Group (LSEG); revenue was 423 million US dollars, slightly lower than the market's consensus forecast of 426 million US dollars. Management also reiterated the company's full-year revenue guidance for 2026 of 1.6 billion to 1.7 billion US dollars.

Fitness equipment manufacturer Peloton saw a 7% surge in its stock price. The company reported revenue of $559 million in the first quarter of its fiscal year, exceeding the market consensus of $554 million set by LSEG; however, earnings per share were 19 cents, falling short of the market's expectation of 21 cents.

The fast-food chain company Wendy rejected a $1.4 billion acquisition bid led by a consortium managed by Triant Fund, and the stock price remained relatively stable. The consortium offered a cash price of $7.35 per share at the end of last month, with plans to privatize Wendy's Burger.

Game development company Unity Software reported financial results far exceeding expectations, with its stock price soaring by 22%. The company reported earnings of 25 cents per share in the third quarter and revenue of $622 million; whereas analysts from LSEG expected earnings of 5 cents per share and revenue of $567 million.

Despite Qualcomm, the chip manufacturer, exceeding earnings per share expectations slightly in its fourth-quarter financial report, its stock price still tumbled by 12%. The company expects the adjusted earnings per share range for this quarter to be $2.15-$2.35, while the consensus forecast from FactSet research analysts is $2.26.

Software company AppLovin delivered better-than-expected results in the third quarter, with its stock price soaring by 19%. The company, which specializes in mobile game advertising, reported a profit before interest, taxes, depreciation, and amortization (EBITDA) of $1.84 billion, exceeding the consensus forecast of $1.73 billion; its revenue was $2.18 billion, also surpassing the expected $2.07 billion.

After online travel booking company Ctrip released earnings guidance for the quarter that fell short of expectations, its stock price dropped by more than 6%. The company expects revenue in the fourth quarter to be between $3.69 billion and $3.75 billion, while FactSet analysts' average forecast is $3.74 billion.

Optical Materials Company Coherent reported financial earnings and revenue that exceeded expectations, yet its stock price fell by 2%. The adjusted earnings per share were $2.09, which is higher than the market consensus forecast of $1.99 set by FactSet; both revenue and this quarter's performance guidance also surpassed market estimates.

Zillow's financial report for the third quarter fell short of expectations, with the stock price plummeting by about 15%. The adjusted earnings per share were 55 cents, while LSEG expected 59 cents; revenue was 724 million US dollars, lower than the market's expectation of 754 million US dollars.

Responsible Editor: Guo Mingyu