Democrats Take Congress: S&P 500 Futures Rebound as AMD and ISM Services Take Center Stage

Key Takeaways

• Democrats take Congress. They won the Senate and the House of Representatives in Tuesday's midterm elections, and Donald Trump said he would accept the results. S&P 500 futures initially fell as much as 1.4% overnight, then reversed. They are up about 0.7% at midday. The market fears tougher regulation of AI and data centers. On the other hand, a divided government shrinks the White House's fiscal room, which is pushing yields lower.
• AMD (AMD) is up 7.3% in premarket trading. The company reported adjusted EPS of $2.09 last night versus $1.94 expected, and is guiding for about $17B in fourth-quarter revenue, versus $16.23B expected. For semiconductors, this counters fears of AI regulation.
• The US 10-year yield is down 3 bp at 4.92%. Even so, CME FedWatch puts the odds of a 25 bp hike on December 9 at about 79%. Any inflation surprise in the ISM services report at 4:00 p.m. Paris time therefore hits valuations directly.
• Market breadth remains the weak spot. On Tuesday, the S&P 500 gained 0.36%, but the equal-weight RSP ETF lost 0.33%. Decliners outnumbered advancers 941 to 551 across the S&P 500, 400, 600, and Nasdaq-100 combined.
• Brent holds near $103.85. Iran's Revolutionary Guards claim four tankers were destroyed by mines south of Hormuz. Oil continues to fuel inflation and the case for a Fed rate hike.

Overnight and Europe

On Tuesday, the S&P 500 closed at 7,568.92 (+0.36%), snapping a three-session losing streak. The Nasdaq Composite gained 0.83% and the Dow Jones lost 0.38%, weighed down by Apple (AAPL, -1.9%) after disappointing margin guidance. Only technology (+1.31%), communication services (+1.18%), and industrials (+0.95%) rose. Consumer staples (-2.07%), materials (-2.01%), energy (-0.85%), and financials (-0.64%) declined. The rebound was therefore driven by a handful of megacaps.

Asia:

• The Nikkei 225, closed Tuesday for a holiday, fell as low as around 60,030 (-4.8%) before paring its loss to about -1.5% (62,162). AI stocks were the hardest hit.
• The Hang Seng is up 1.09% at 23,783.58.
• Shanghai gains 1.9% to 3,676.
• The Kospi (+0.6%) erased a drop of more than 3%.

Europe (after the first hour of trading): Euro Stoxx 50 +0.8%, DAX +0.5%, CAC 40 +0.5%. Renewable energy stocks are leading.

US futures: the December ES contract is up about 0.7% near 7,650, versus a 7,600 close on Tuesday. It hit a low near 7,495 overnight. The Nasdaq 100 erased a drop that had reached 2.4%. The Dow is outperforming (+1% around 4 a.m. New York time). Hyperscalers are falling on the German Tradegate platform: Amazon (AMZN), Alphabet (GOOGL), Microsoft (MSFT), and Meta (META). Tesla (TSLA) is down about 4%. Today's scenario boils down to this: rotation out of AI, supported by easing yields.

Today's Calendar

A high "prices paid" sub-index in the ISM would matter more than the headline: inflation was 3.7% in September and Brent is above $100. The October jobs report comes out Friday. Job creation was just 29,000 in September. October inflation is released on November 10.

Fed and Rates

• Policy rate and October vote. The rate is in the 3.75% to 4.00% range after the September hike. On October 28, the committee held rates by a 10–2 vote. Lisa Cook, Fed governor, and Beth Hammack, president of the Cleveland Fed, voted for a 25 bp hike. Kevin Warsh, Fed chair, gave no guidance on what comes next.
• Probabilities. CME FedWatch puts the probability of a hike on December 9 at around 79%, up from 72% before the JOLTS job openings data. Openings rose to 7.52 million, a four-month high.
• Speeches. Beth Hammack and Tom Barkin, president of the Richmond Fed, speak Thursday.
• Yields. The 10-year is back at 4.92% (-3 bp, low of 4.89%) after 4.95% on Tuesday. The 2-year is near 4.56% (about -3 bp) versus 4.61%. The Democratic Congress buries Trump's promise of a $5,000 check per adult, estimated at $1.2 trillion. Less expected government spending means less debt issuance, which helps bonds.
• Index read-through. A 10-year sustainably below 4.90% would support valuations. A move back above 4.95% after the ISM or the Treasury announcement would wipe out much of the overnight rebound.

Earnings

AMD. Data center revenue reached $8.5B (+97% year over year). AMD says it has secured wafers, advanced packaging, and memory to support accelerating demand. This supports Nvidia (NVDA), Broadcom (AVGO), and Micron (MU). For the sector, it is the best answer to fears of AI being capped by regulation.

Arista. Growth of 58.5% year over year, the strongest since its IPO. AI networking demand from its customers, including Meta and Microsoft, is holding up well.

Customers and suppliers outside the index. Super Micro Computer, a direct customer of Nvidia and AMD, reported $19.9B in revenue and is targeting $72B to $82B for the fiscal year. Skyworks, an Apple supplier, plunged 14% to 16% after the close: its quarterly guidance of $1.80B to $1.90B points to a weak smartphone market. That is a negative signal for Apple and for Qualcomm tonight.

Before the open. Uber holds its call at 2:00 p.m., McDonald's at 2:30 p.m., and Kraft Heinz at 3:00 p.m. CVS Health (CVS), which has beaten adjusted EPS forecasts six quarters in a row, holds its call at 2:00 p.m. The market will look for signs on consumer health and, for CVS, on medical costs at Aetna.

Tonight, around 10:00 p.m. Qualcomm is the key event: EPS is expected to decline year over year. Weak guidance would confirm Skyworks' smartphone signal. AppLovin, one of the worst performers in the S&P 500 this year, will serve as an advertising barometer. Allstate and MetLife provide the read on the insurance sector.

Context. According to Bloomberg Intelligence, S&P 500 third-quarter earnings are up 31%, and 83% of the 341 companies that have reported so far beat expectations.

Geopolitics and Conflicts

United States: Congress flips

• Actors: the Democratic Party, Donald Trump.
• Latest development: Democrats control both chambers, including districts long held by Republicans. Government will be divided starting in January.
• Channels:
• AI and data center regulation, with Democratic gains in Texas and Georgia, two key states for data centers;
• taxation and government spending;
• risk of a debt ceiling standoff;
• possible sector effects on defense, healthcare, and banks.

If hyperscalers underperform, tech weighs on the cap-weighted index. Cyclical sectors may benefit from lower yields.

United States – Iran

• Actors: Washington, Tehran, with Qatar mediating.
• Latest developments:
• US strikes described as "defensive" on Iran's Qeshm Island, after Iranian fire on US aircraft;
• Washington reportedly approved a draft memorandum of understanding presented by Qatar, but Tehran deems the latest US response unsatisfactory;
• Donald Trump told the Financial Times he has no immediate plans for strikes;
• the Revolutionary Guards claim four tankers were destroyed by mines south of Hormuz and two vessels were seized.
• Channels: energy, inflation, Fed. Weakened at home, Trump could harden his stance abroad.

China: yuan and economic support

• Actors: the People's Bank of China (PBOC).
• Latest development: the PBOC raised the reserve requirement ratio on foreign-currency deposits from 4% to 6% to curb the yuan's rise.
• Channels: dollar, commodities, appetite for Chinese assets. Shanghai rebounds 1.9%.

Oil and Commodities

• Oil. On Tuesday, Brent closed at $103.60 (-1.12%) and WTI at $96.09 (-0.38%) after a two-week low. This morning, Brent is back up near $103.85 (+0.2%) on the Hormuz news. EIA crude inventories at 4:30 p.m. will be the next driver.
• Natural gas: $2.90 (+1.54% Tuesday).
• Gold: about $4,018 (+2.2%), lifted by a weaker dollar and lower yields. The odds of a December Fed hike are capping its gains.
• Index impact. Energy lagged on Tuesday (-0.85%), so its direct effect is limited. The indirect effect matters more: Brent above $100 keeps inflation at 3.7% and sustains the case for a December rate hike.

Dollar and Volatility

• Dollar: the DXY is down 0.35% at 101.51, a one-month low, versus 101.87 at Tuesday's close. EUR/USD gains 0.4% to 1.1231 and USD/JPY falls 0.4% to 158.12.
• VIX: closed Tuesday at 20.83 (-1.51%). The November VIX contract rose 6% to 21.10 overnight, covering the December 9 Fed meeting. The one-day VIX (VIX1D) had jumped nearly 30% to 23.22. Options were pricing a move of about 1.14% today, largely already realized overnight.
• Read: stress is concentrated in the short term. A VIX above 20 describes a nervous market, not a panicked one.

What to Watch This Session

1. 2:00 p.m. to 2:30 p.m. — Uber, CVS, and McDonald's. Their numbers and calls provide a first read on consumer spending and healthcare.
2. 2:15 p.m. and 2:30 p.m. — ADP, then the Treasury announcement. A strong ADP or an announcement of more long-dated issuance would push the 10-year back toward 4.95%. That would be the first threat to the rebound.
3. 3:30 p.m. — Cash open. Watch:

• whether AMD (+7%) lifts semiconductors while hyperscalers and Tesla slide;
• the spread between the equal-weight RSP and the S&P 500.

A rise in the equal-weight index would confirm a genuine rotation. A rally driven by a few names would look like Tuesday.

1. 4:00 p.m. — ISM services (54.8 expected). With rising prices paid, December hike bets would top 80% and the positive tone would be invalidated. A moderate reading would confirm it.
2. 4:30 p.m. — EIA inventories, plus Hormuz headlines for Brent.
3. Around 10:00 p.m. — Qualcomm, AppLovin, Allstate, MetLife, McKesson. They will set the tone for futures on Thursday, the eve of the Bank of England decision and Beth Hammack's speech.