It was supposed to be a selloff. Instead, Wall Street popped champagne.
Democrats swept both chambers of Congress in Tuesday’s midterm elections, and rather than panic at the prospect of gridlock, markets opened sharply higher on Wednesday. The S&P 500 surged 1.1% at the bell, the Dow jumped over 1,000 points, and Treasury yields dipped as bond prices rallied. It was the kind of reaction you’d expect from a stimulative fiscal surprise — not a split-government stalemate.
What gives? Analysts pointed to three dynamics: lower yields boosting equity valuations, the death of a feared $5,000-per-adult stimulus had Republicans kept control, and — the real kicker — the market realizing that gridlock in Washington doesn’t necessarily mean gridlock in corporate earnings.
“The rebound suggests investors are not ready to abandon the buy-the-dip playbook just yet.” — Charu Chanana, Chief Investment Strategist, Saxo
The Numbers
- ADP Private Employment (Oct): +86,000 jobs — beat the 69,000 consensus. September was revised down from 90K to 86K. (ADP Research Institute)
- ISM Services PMI (Oct): 54.5 — down from 54.9 in September and below the 55.1 forecast. Business Activity dropped to 53.8 from 56.5, while New Orders cooled to 55.9 from 59.8. Still expansionary, but the momentum is fading. (Institute for Supply Management)
- Trade Deficit (Sep): $105.0 billion — narrowed from $105.7 billion in August, beating the $108 billion consensus. Exports rose 1.9% to $321.5 billion; imports hit a fresh record at $426.6 billion, led by computers and pharmaceuticals. (Bureau of Economic Analysis)
Inside the ADP Report: Winners and Losers
The headline 86K gain masks a deeply uneven month. Trade, transportation, and utilities led the charge with 39,000 new jobs — the kind of logistics hiring you’d expect ahead of the holiday season. Education and health services added 28,000, and leisure and hospitality chipped in 19,000.
But professional and business services shed 27,000 jobs — the worst-performing sector — and information lost 2,000. Small businesses (1-19 employees) added 21,000, while mid-sized firms (20-49) contributed just 7,000.
The BLS’s official jobs report drops Friday, and economists surveyed by Reuters expect nonfarm payrolls to rise by just 65,000 — a number that would be the weakest since the spring hiring surge. The unemployment rate is forecast to hold at 4.2%.
📌 Note: ADP has been a poor predictor of the BLS payroll number in recent months. Take the sector breakdown as directional, not gospel.
The Election: Gridlock, But Markets Didn’t Get the Memo
The Democratic sweep sets up two years of divided government with President Trump holding veto power. Standard playbook: gridlock means less fiscal stimulus, which means lower growth expectations, which means stocks should sell off. But the playbook went out the window.
Instead, the removal of a tail-risk scenario — a Republican sweep enabling a massive $5,000-per-adult stimulus check — sent bond yields lower. Lower yields, in turn, made equities look more attractive. “Even though that was considered a 5% tail risk, that’s now gone,” said Andrew Lilley, chief rates strategist at Barrenjoey. “If it had happened, it would have been a cataclysmic reaction from Treasuries.”
Not everyone celebrated. AI and data center stocks slid as Texas flipped its governor’s mansion to a Democrat, raising fears that the state’s AI infrastructure boom — Texas and Georgia together account for roughly a third of all U.S. data center spending — could face regulatory headwinds. The Goldman Sachs Broad AI basket is now down over 24% from its peak.
ISM Services: Still Growing, Losing Steam
The services sector, which powers more than two-thirds of the U.S. economy, remains in expansion territory — but October’s 54.5 reading is the softest in months. The sharp drop in Business Activity (53.8 from 56.5) and New Orders (55.9 from 59.8) suggests businesses are turning cautious.
Combined with last week’s ISM Manufacturing PMI at 55.5 — actually up from 54.5 in September — we’re seeing a subtle rotation: goods-producing sectors are picking up steam while the services engine downshifts. That’s not a recession signal, but it’s worth watching if the trend holds through year-end.
Trade: Record Imports Narrow the Gap
The September trade deficit narrowed slightly to $105 billion, but the headline number masks a more interesting story: imports surged to an all-time high of $426.6 billion as businesses kept front-loading purchases ahead of potential tariff changes. Exports rose 1.9% to $321.5 billion — a five-month high, boosted by computers, soybeans, and crude oil.
The largest bilateral deficits: Mexico ($28.7B), Vietnam ($25.3B), Taiwan ($21.9B), China ($17.9B), and the EU ($14.2B). The sheer size of these gaps — particularly with Vietnam and Taiwan, both major semiconductor hubs — underscores how deeply the U.S. tech supply chain depends on Asian manufacturing.
Bottom Line
Wednesday was a reminder that markets don’t always follow the script. A Democratic sweep was supposed to be bad for stocks. Instead, the death of a Republican fiscal bazooka pushed yields lower, and lower yields made equities the only game in town.
The economic data tells a more cautious story. Jobs are still growing — 86,000 ADP, more than expected — but the hiring is uneven and concentrated in logistics and healthcare. Services are still expanding but losing momentum. Imports are hitting records while exports are trying to keep up.
What to watch Friday: the BLS jobs report. If nonfarm payrolls come in anywhere near the 65,000 consensus, the “soft landing” narrative gets a data point. If they miss badly, the election rally might not survive the weekend.
Sources: ADP Research Institute, Institute for Supply Management, Bureau of Economic Analysis, Reuters, Trading Economics