The growth risk behind America’s blue wave

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Why the Democrats’ gains could threaten future investment and economic growth.

Voters can punish a government over the cost of living and still elect policies that make future growth harder to achieve. Wall Street’s second thoughts about America’s midterm elections expose this uncomfortable possibility.

After the Democrats’ sweeping victories, share prices rose on 4 November.

The following day, the S&P 500 fell by more than 4% and the Nasdaq by more than 5%. Investors had begun to reconsider what the new winners might do.

Markets value businesses according to the profits they expect them to earn.

Higher-than-anticipated taxes or longer delays before a project opens can lower valuations immediately. Gross domestic product (GDP) can remain healthy while investors mark down the growth they previously expected.

Republicans had encouraged investment through the 2025 tax law, which restored immediate deductions for domestic research spending and permanent full first-year deductions for qualifying assets.

These provisions improve cash flow when businesses commit capital, making some otherwise marginal projects worthwhile.

Democratic Senator Ron Wyden has proposed an excise tax on data centres and the withdrawal of investment incentives. These measures require legislation, and President Donald Trump retains his veto. But Democratic gains increase their political weight.

In Texas, Governor-elect Gina Hinojosa supports extending restrictions on data-centre approvals beyond Republican Governor Greg Abbott’s existing pause. For developers, this prospect means more uncertainty over when investments will start earning.

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