Democrats have taken both the House and the Senate, and they now hold both chambers for the first time in either Trump presidency. Our first broad key takeaway is that we think the US may benefit in the near term from a relative-value bounce as confidence in the rule of law, transparency and leadership is priced back in, with a cautious reallocation into constructive US investment. Now the US needs to earn it.

What comes next looks like a lot of gridlock. President Trump may try to rule by veto, and overriding a veto takes two thirds of both chambers, which is normally a long shot. That said, with all eyes on the 2028 presidential election and a historically unpopular incumbent, Republicans may now have the motivation to stand against him on some issues, and executive orders such as the one on Russian diesel should meet some rational friction. For their part, the Democrats will, in our view, need real policy on clearly communicated issues and not just investigations into the Trump administration.

On data centres and AI

The initial market reaction highlighted investors’ key concerns with a dip in AI-related shares in Asia and US futures. Treasury yields and the US dollar slipped, before a stocks and bonds rebound. The dollar’s drop signals the market is pricing in the probability of an increase in regulation which it views as a potential constraint on growth.

Alongside the cost of living, data centres were a key battleground in the election and that opposition has produced a long backlog of projects waiting for approval. Investors don't want to be sitting on a stalled project with no revenue and the costs are starting to show up in the numbers. Credit spreads are widening (Figure 1) and equities are being repriced because the real costs are materially higher and the timelines are longer.

Pricing these capital structures is a complicated equation and a lack of clarity, specifically around revenue and profitability, is costing investors time and money. The value of the actual collateral is another matter entirely which is likely more appropriately blamed on Moore’s Law than Republican or Democrat policy.

Figure 1: Hyperscaler investment-grade spreads have doubled from their early-2025 level

Source: JPM USD IG Hyperscaler Index, as at 14 September 2026.

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What it means for the AI trade

So, what will the Democratic sweep do to the AI trade? Markets have generally disliked more rules, but just dropping data centres into people’s backyards has not worked either, which is why we see an interesting inflection point.

In our view, investors, whatever their politics, need to know which regulations they will be subject to before committing to something that runs for decades. This is a material part of the cost structure. Anyone building a data centre today will face rules from this Congress and possibly from a president after the 2028 election. Knowing roughly what those rules look like is typically a form of risk management, and we think a clear framework could prove more profitable in the long run than the current uncertainty for the companies behind the buildout.

Shapiro’s blueprint

Individual states are currently handling this differently, and the model we would watch is Pennsylvania Governor Josh Shapiro’s, a Democrat. He has built his approach around what his administration calls the Governor’s Responsible Infrastructure Development standards, or GRID. Developers have to build, bring or buy the electricity capacity they need, so households do not end up paying for it through higher bills. They also have to cover the cost of any grid upgrades themselves, and they have to engage with communities early by telling local governments, holding public meetings and negotiating a community benefits agreement.

Many other Democrats are still working out their positions on the fly, and they may end up aligning with Shapiro. Louisiana has gone for a more direct route. A law passed this year lets West Feliciana Parish, home to a large data centre project, return some of the revenue to residents through property tax credits from 2027, in the spirit of the Alaska oil dividend. Shapiro’s is the more community-minded of the two and, in our view, the likelier template for Democrats.

Can the Democrats fix inflation?

Unsurprisingly, a war that pushed up inflation did not go down well with voters already struggling with years of high living costs. The low-hanging fruit on inflation would be to take the war premium out of energy costs, but Congress has limited power over foreign policy. Tariffs are part of the equation too, as many voters see them as adding to higher prices. With 2028 in mind, Republicans are more likely to hear that concern.

The new Congress can assert its position more effectively after January, but this vote will not fix everything that’s currently irking voters and investors. What it does is change the politics. The election was really Americans voting for checks and balances, and it will make it hard for any Republican who wants to win in 2028 to be complicit or silent.

The longer-run problem is structural. US inflation was 3.7% in September, driven by energy, and the enormous debt and deficit are still there, a counterweight to the Democrats’ historical position on taxes and spending, and that points to a likely outcome of stagflation.

Gridlock may be favourable for risk assets in the near term, but the need to fight inflation has not gone away.

Parting thoughts

The result of the election was not a landslide win for Democrats as much as it was a landslide loss for Republicans. Basically, last night was more about taking away the keys than awarding a trophy.

All data Bloomberg, unless otherwise stated.

Author: Matt Rowe, Managing Director and Senior Portfolio Manager, Solutions at Man Group.