Democrat sweep adds new twist to markets' Iran, AI, and debt worries

Investors focused on whether the Iran war could escalate after the midterms and on the debate over US fiscal spending. Analysts warned that higher energy prices following an escalation could hurt both stocks and bonds. Oil prices remained above $100 a barrel, raising fuel costs and the risk of broader inflation.

Investors also weighed whether Democratic control of Congress would bring tougher scrutiny of AI sector growth. World stocks and US stock futures rose after falling overnight by as much as 2%. AI investment and highly indebted governments have helped push borrowing costs to multidecade highs, while concern about US debt has contributed to higher government bond yields this year.

Congress postponed debate over fiscal 2027 spending until after the midterms, setting a December 11 deadline for a funding agreement. The debt ceiling deadline is unlikely to arrive until late 2027, and Democrats could use the so-called X-date as leverage in spending and tax negotiations. Treasury yields fell on Wednesday after a proposed $5,000 payment to US adults tied to a Republican victory was no longer expected to materialize.