Nikkei falls 3.6% as Democrats gain control of US Senate

Key Facts

Japan’s Nikkei fell 3.6% to 60,835.36 on Wednesday, Nov. 4, its lowest level since early May, as results from the US midterm elections were still taking shape. The Associated Press said technology and AI stocks came under waves of selling as investors worried they may have risen too far during the AI investment boom. SoftBank, an investor in OpenAI, fell 8%, while Japanese memory-chip maker Kioxia dropped 10.8%. In South Korea, the Kospi fell 3.2% to 5,466.83, with SK Hynix down 3.2% and Samsung Electronics down 1.8%. The agency linked the selloff to concerns about AI stock valuations and the possibility that the sector could face greater political and regulatory scrutiny.

The Associated Press reported that Democrats had regained control of the Senate, while control of the House remained too early to call. Before the results became clear, markets were watching the vote; Wednesday’s moves therefore coincided with early indications, not a complete final assessment of the outcome. The agency said some Wall Street investors believe Democratic control of both chambers of Congress could lead to stricter rules and limits on AI development. But President Donald Trump will remain in office and has veto power, making new federal legislation harder to pass. An analyst at OCBC said the price action was “consistent with concerns about greater scrutiny of AI in the event of a Democratic sweep.”

Concerns also extended to the AI sector’s energy needs, after investors spent months focused on financing costs. An analyst at SBI Asset Management said, “The AI trade has spent months worrying about financing costs, and may now have to start worrying about the politicians who control the power grid.” The shift puts chipmakers and data centers into a political debate over the grid’s ability to meet demand, alongside possible scrutiny of technology development. Reuters reported that declines in US futures, Treasury yields and Asian AI stocks accompanied early Democratic gains, pulling the dollar lower. It also quoted a currency analyst at Commonwealth Bank of Australia as saying a Democratic sweep could weigh on the dollar if it curbed government spending during the remainder of Trump’s term.

In currency markets, an early trading snapshot reported by the Associated Press showed the dollar falling to 157.76 yen from 158.69 yen, while the euro rose to $1.1241 from $1.1194. In later trading, Reuters reported the euro up 0.5% at $1.1249 and the yen up 0.7% at 157.63 per dollar, while the dollar index fell 0.3% to 101.4. The figures reflect different observation times during the session, as traders tracked early Democratic gains. Before Wednesday’s session, US stocks were mixed on Tuesday, Nov. 3: the S&P 500 rose 0.4% despite most of its stocks falling. The Dow Jones fell 197 points, or 0.4%, while the Nasdaq Composite gained 0.8%.

The moves in Asia followed a strong rally in AI stocks that had raised valuation concerns, while corporate results remained a factor in the market’s direction. In the economic backdrop, the US Bureau of Economic Analysis estimated that real gross domestic product grew at an annual rate of 3.4% in the third quarter of 2026, after growth of 2.2% in the second quarter. Investment, consumer spending and government spending contributed positively to third-quarter growth, while a decline in exports offset some of those contributions. In the bond market, the Associated Press reported that the yield on the 10-year US Treasury was 4.96% on Tuesday, compared with 4.91% at the close on Monday, Nov. 2. Markets are awaiting the US employment situation report for October, due Friday, Nov. 6, at 8:30 a.m. Eastern time.

Investors are also tracking the course of the election results and what they could mean for AI legislation and government spending, with the presidential veto remaining a factor in calculations of whether laws can pass. The Associated Press cited historical data that an analyst at Edward Jones said showed the S&P 500 posted a positive return every time in the six months following a midterm election since 1970. That historical context does not change the mixed market action in the current session, as Asian chip stocks fell while currencies moved with developments in the results. The US employment report on Nov. 6 is the next near-term release on the economic calendar. The Bureau of Economic Analysis is scheduled to issue its next GDP estimate on Nov. 25, 2026.