Weekly market commentary

Markets were volatile over the week as investors digested the US midterm elections, another busy run of corporate earnings and continued uncertainty around the technology sector. The Democrats secured control of both the House and Senate, including notable gains in Texas, Georgia and Kansas, the latter of which had been Republican since 1932. Equities initially rallied following the result, while the US dollar and oil moved lower and precious metals rose. Government bonds also rallied, with 10-year US Treasury and UK Gilt yields falling as the election result raised expectations that US involvement in the Iran war could ease. Even some of President Trump’s closest allies were quick to blame the conflict for the scale of the Republican defeat. The initial rally was broad based, including across many of the technology stocks that had faced pressure in the run-up to the election. 

However, the improvement in technology stocks proved short-lived, with the sector subsequently giving back gains as attention turned to the potential implications of the election result, including for areas such as data centre regulation. Despite continued strength in AI-related earnings, investor expectations remain elevated and market leadership has started to broaden. On Thursday, the S&P 500 fell nearly 4.5%, while just 73 of its 500 constituents finishing the week in positive territory. The weakness extended internationally, with Asian technology stocks also coming under pressure. South Korea’s semiconductor-heavy KOSPI fell more than 5% on Thursday, triggering a temporary halt in trading, with the index’s largest names, SK Hynix and Samsung electronics, falling 9.6% and 7.6% respectively. 

In the UK, the Bank of England raised interest rates for the first time since 2023, by 0.25% to 4.0%, as markets had expected. However, the vote was more hawkish than anticipated with all nine members voting for higher rates compared with expectations for a 7-2 split. Notably, one member, Catherine Mann, voted for a larger 0.5% increase. The decision comes as policymakers continue to contend with persistent inflationary pressures, with the Governor warning that disruption from the Iran war could push inflation to 5% by summer 2027. Gilt yields subsequently moved higher as investors digested the more hawkish message, offsetting some of their earlier post-election decline.