SINGAPORE – Gold prices rose and Wall Street stocks rallied on Nov 5, but the US dollar dipped after the Democratic Party swept both chambers of Congress in the United States midterm elections, as investors assessed what a political gridlock in the US could mean for the global economy.
A democrat-controlled Congress could restrict US President Donald Trump’s plans for further fiscal stimulus, potentially slowing economic growth and reducing the need for additional interest rate hikes by the US Federal Reserve, experts said.
Some told The Straits Times that the market’s reaction reflects expectations of slower US fiscal spending, easing inflationary pressures and reduced political uncertainty.
Still, the outlook for gold, currencies and equities will continue to depend on the Federal Reserve’s interest rate decisions and broader economic developments, they said.
Here’s what to expect in the months ahead and what it means for investors:
1. Gold
What happened: Spot gold climbed more than 2% to US$4,138 an ounce after the mid-term results were announced. Gold had fallen below the US$4,000-an-ounce mark in recent sessions amid expectations of further US interest rate hikes.
What it means: Zavier Wong, market analyst at etoro, noted that despite the recovery, gold is still down more than 4% this year.
But expectations of another Federal Reserve rate hike in December could limit further gains in gold, with the upcoming US jobs report on Nov 6 likely to also influence its outlook.
“A soft number would take some of the December hike out of the market, which helps gold, while a strong one firms up yields and the greenback, which weighs on it,” said Wong.
Oriano Lizza, sales trader at CMC Markets Singapore, said real yields and investment flows would have a greater influence on gold prices than the outcome of the midterm elections.
“Fed hikes slow the rally but don’t end it, and central banks are still buying gold at several times their pre-2022 pace,” said Lizza.
“Gold is expected back at US$4,500 in the coming months and above US$5,000 by end-2027, even if the US dollar firms up,” he added.
2. US dollar
What happened: The US dollar fell to a one-month low. The dollar index, which measures the greenback against a basket of six currencies, fell 0.24 per cent to 101.24.
It dipped slightly against the Singapore dollar, to just over $1.277.
What it means: Ninghui Liu, head of investment strategy and research for Asia-Pacific at State Street Investment Management, said improving investor sentiment as a result of the midterms have temporarily reduced demand for the US dollar as a safe-haven currency.
However, the strength of the US economy is still supportive of the dollar, while the market continues to expect further Fed rate hikes. So, investors should not read too much into its decline after the midterm elections, he said.
But he added that the Monetary Authority of Singapore’s decision in October to maintain its policy of allowing the Singapore dollar to appreciate gradually should continue to support the local currency, although persistent US inflation and a return to global risk aversion could still result in a stronger US dollar.
CMC’s Lizza expects the US dollar index to return to around 102 by the end of 2026 and strengthen modestly through 2027.
“Congress has little say over foreign policy, so a flare-up in the Middle-East could still lift the dollar (through higher inflation),” he said, adding that for the US dollar to keep falling, the US economy would need to weaken and the gap between US interest rates and those elsewhere would need to shrink.
“We don’t expect either to happen soon,” he said.
Lizza noted that the US dollar fell by just around about 0.3% against the Singdollar after the elections, to around $1.28.
He expects one US dollar to trade between $1.27 and $1.28 through year-end, as MAS policy supports a gradual strengthening of the Singdollar. However, the greenback could rise towards $1.30 in 2027 if US interest rates remain elevated, he added.
3. Equities
What happened: The benchmark S&P 500 index rose 1.58% to close at 7,688.73 points on Nov 5, while the tech-heavy Nasdaq gained 1.44% to 25,736.51. The Dow Jones Industrial Average jumped 3.04% to 53,362.57.
Semiconductor stocks bucked the rally, with the iShares Semiconductor ETF falling 3.14%.
Asian markets were mixed on Nov 5, with South Korea’s Kospi falling about 5.2% and Japan’s Nikkei 225 declining 1.8% amid a sell-off in semiconductor and artificial intelligence-related stocks.
Hong Kong’s Hang Seng Index rose about 3.6%, while Singapore’s benchmark Straits Times Index edged up 0.19%.
What it means: Charu Chanana, chief investment strategiest at Saxo, said the stock market’s reaction reflected easing political uncertainty and a shift in investor expectations about which sectors could benefit from a Democratic-controlled Congress.
She noted that investors were selective about where they invested – healthcare, renewable energy and consumer-related stocks gained on expectations of more supportive policies, while falling oil prices provided further relief to consumers.
While established technology companies such as Microsoft, Alphabet and Amazon also rallied, semiconductor stocks and businesses dependent on new AI data centres remained under pressure.
James Ooi, chief market strategist at Tiger Brokers, noted that tighter rules on data centre development could deepen the divide between AI stocks, favouring cash-rich technology giants while weighing on chipmakers and smaller developers.
Slower data centre construction could delay orders for chips and other equipment, while smaller developers and AI cloud operators face greater risks, particularly those reliant on debt, said Ooi.
For hyperscalers though, lower capital spending could improve cash flow and leave more money for dividends or share buybacks, even if revenue growth slows. He added that restrictions could also increase the value of their existing data centres.
Steven Chiavarone, chief investment officer for global equities at Federated Hermes, said warned that stocks could remain volatile in the coming weeks, but should rise over time.
He noted that historically, the 12 months after US midterm elections have favoured equities: the S&P 500 has not posted a negative return over that period in 88 years, with gains averaging 14%.
One possible explanation is that electoral losses push the president’s party to pursue economic policies that improve its prospects at the next presidential election, Chiavarone said.
A divided government can also constrain sweeping legislation that unsettles investors, while leaving room for modest measures to support growth.
For investors, the focus should remain on economic growth, infrastructure investment and corporate earnings, he said.
