Inside Wall Street's Wild Ride After Democrats' Stunning Midterm Victory

Democrats made major gains in the midterms, flipping control of both the House and the Senate, setting up a major political showdown with the White House. The results could have big consequences for taxes and tariffs, but they're already having a major effect right here on Wall Street. Joining us now to unpack all of this and more is Rob Schroeder, Washington Bureau Chief at MarketWatch. Thank you so much for being here, Rob. Hi. Thank you so much. We really appreciate it. We have a lot to get to. First, I have to ask you about what is happening here at the exchange. So at first, we actually saw stocks rally after the results with the Dow jumping more than 3% Wednesday than yesterday came. We saw a massive tech sell-off and some of the worst numbers that we've seen in markets in quite some time. So talk us through what's happening here. Yeah, absolutely, Justine. It's interesting what happened. First, big gains. Then, like you said, big drop. Now, today, we're back up a little bit. The key here, really, I think, is what's going on with artificial intelligence, otherwise known as AI, and these data centers that were a tremendous part, really, of elections around the country this past week here during the midterms. There were a lot of ballot measures. In various states unfavorable to the industry and Democrats are saying congressional Democrats are saying in as they come in next year that they want to do investigations and hearings and sort of. Crimp development of this technology, which has been blamed for using electricity, you know, to a large degree and so on. We'll see if that happens today. I think you're seeing sort of a classic buying opportunity after a big wipeout yesterday. So so you have people piling back in to these companies stocks with the recognition, I think, that these things are here to stay. It's a technology that's not going away. Yeah, that's such a good point to say that, yes, these things come and go with what's happening with these trends, but the actual technology of what's happening is not going anywhere at all. And thinking about what's been going on here at the stock market historically, it's actually performed well after midterm elections with the S&P 500 averaging around 20% in the following 12 months. So should we expect, should investors really think about that pattern unfolding? Or what do we think is going to happen after this initial kind of sell-off that happened yesterday? I do. You know, it's been quite a strong year once again for stocks here. I think the S&P most recently for the year to date was up around something like 10 percent. That's certainly better than being down 10 percent if you're an investor. Now, a lot of that, though, I think does come under a bit of a threat here from from the new Congress. In some ways, some of this AI policy that they want to put in place. It does, I think, or could have an impact. But at the same time, even away from Washington, you had the governor-elect of Texas, Gina Hinojosa, say that she didn't have an anti-data center message per se. She really said that this needs to be done in a way that's smart and in a way that's not disruptive and so on. So I don't think anyone's talking about. I'm killing this technology, certainly, because as I said earlier, I think it's here to stay. And I think politicians of all stripes recognize that. So that's one factor. Another that may, on the other hand, contribute to a rally is what happens with tariffs. And we'll see if the Democrats can get President Trump to back off on some of his tariffs here in the coming weeks and months. Yeah, I was going to ask you about that. I mean, so many different issues going on right now with the economy. But with the Democrats flipping both the House and the Senate, how big of a political earthquake is that? And what does it really mean for President Trump's final two years in office in terms of will he back off of tariffs? Will he make any other policy changes that could have a really big effect on the economy now that the Democrats have control of the House? Yeah, well, there's certainly two things here that immediately come to mind, one of which is tariffs. The other is the war in Iran, which proved to be very unpopular in so far as it affected inflation. And certainly we we know where that comes from. There's a war. It crimps oil supply that translates to higher gasoline prices and it flows through to many, many parts of the economy. Voters don't like that and voters punish Republicans for that. So we'll see here if Democrats can take that, harness that anger and get the president to back off or have some sort of resolution and have a normalization once again in the oil market and therefore to gasoline and diesel. Yeah, I mean, it really seems like that kind of economic frustration was driving so much of this Democratic sweep. As you mentioned, Gina Hinojosa in Texas, there are other Democrats winning in traditionally Republican states, South Carolina, Iowa, Kansas. What do you think this tells us about the political map? And also, do you think that this is a warning sign for Republicans as they next head into 2028? Yeah, well, as people around the country, not just in Washington, like to say, you know, the next presidential campaign began after the midterms. So I think you'll have some jockeying and so on. But I think the lesson here for candidates of any party, really, is to not punish consumers where it hurts, if we're talking about the economy. And that's in their wallets. So don't do... Things that are going to automatically translate into higher costs and so on. You know, You know, the parties can debate the justness of the Iran conflict, but on its merits, I think it did certainly raise prices in the form of higher diesel, higher gasoline and so on. So I think that they're going to have to thread that needle very carefully. And tariffs, once again, to go back to that, are also going to be an important lever that the president or Congress can pull. You already have top Democrats saying that they want to try to pull back some of these tariffs on Canada, which, again, is an enormous trading partner for the U.S. So that's had a direct impact on what people pay. Yeah, I mean, thinking about some of this push and pull that you're describing here, we can only expect more of that as we now headed to having the Democrats controlling Congress and President Trump still in the White House. I mean, do you think that we're really going to be looking at two years here of basically just gridlock here in politics? And also, is there any part of that that could be good news for the markets? Yeah, I think markets traditionally are fans of gridlock. You know, I don't think that you'll see real major legislation get done here. And the numbers, of course, are very important to remember. Even though Democrats might like to pass bills about about AI or permitting or crypto or what have you, they have a high bar to clear. First, in the form of 60 votes in the Senate, which is the magic number for things to get done. And then, of course, the president has the power, any president has the power of the veto pen. And certainly President Trump would use that. He said he would use that. But I would also say that the president thinks of himself as a dealmaker. And I wouldn't rule out some sort of deal. I don't know on exactly what subject. Probably not on raising taxes, but maybe some tariffs could go away. You know, he did make some concessions on tariffs earlier in this campaign cycle to help his own party. So I wouldn't entirely rule it out. Yeah, we definitely have a lot to keep our eye on there. I mean, as you kind of look at the bottom line here, do you think that this election really marks a real turning point for the economy and financial markets or will Wall Street ultimately care a lot more about corporate earnings, inflation, interest rates, and really who controls Congress at this time? Well, it certainly was, I think, a political watershed and it translated into an economic one as well. Because once again, the two, I think... Overarching factors here in the midterms were inflation and tariffs, inflation rather caused by the Iran war and those tariffs, which also you can argue are inflationary as well. So I think that politicians can learn from. from their past actions and they can go forward and do what is best for the economy, for the country and so on. But I think anybody thinking about slapping more tariffs on or disrupting the oil market with more military action in, say, the Middle East might have to think twice after this. And that has tremendous ramifications for the economy and for Americans. Yeah, it definitely does. And we will wait to see what happens with all of that. But we appreciate you walking us through all of it today. Rob Schroeder, Washington Bureau Chief at MarketWatch. Thank you so much for your time. Thank you.