Trump's US midterm election defeat: Stock market history; what it means for Nifty, Sensex

Benchmark stock indices Nifty and Sensex may have cut gains following the US midterm election outcome, but history suggests that the three months following the event usually bring gains for global markets.

The US midterm election results represented a critical near-term trigger. Historical data from the past 11 occurrences since 1982 indicate that, on eight occasions, the US benchmark S&P 500 delivered average positive returns of 10 per cent over the next three months. In India, stock indices delivered an average positive returns of 12 per cent on six occasions since 1982, ICICI Direct noted.

This time, Democrats were leading in 224 seats in the 435-seat US House of Representatives and 54 seats in the Senate.  "I wasn’t on the Ballot and if I was, we would have won IN A LANDSLIDE! Thank you for your attention to this matter," US President Donald Trump, a Republican, said in a social media post.

Tanay Dalal, Senior VP of Economic Research at Axis Bank said the Democratic surge in the US midterm elections appears stronger than many observers expected, with several traditionally Republican strongholds coming under pressure.

"One potential consequence could be a more fragmented approach to AI regulation. For India, this may be a positive development, as a less uniform regulatory environment could sustain demand for outsourced technology and business services exports," he said.

Stocks cut gains today as oil prices rebounded on fears of US strikes on Iran as the election dust settled. Crude oil futures for December delivery rose 2.4 per cent to $117.64 a barrel. JM Financial assigned a 45 per cent probability to a scenario involving episodic US strikes and attacks post election, stop-start talks and Brent prices being capped by mediation.

It assigned a 30 per cent probability to a scenario involving US strikes on Iran and a renewed closure of the Strait of Hormuz, potentially pushing crude oil prices to $125-140 a barrel for several months.

In India, Sensex fell 796 points from its day's high of 77,396 to a low of 76,604. Nifty too tanked 250 points from its day's high of 23,946 to a low of 23,696.

ICICI Direct said the 23,200 level has emerged as a crucial structural support area for Nifty. This region is likely to serve as the initial cushion during any near-term pullbacks, with its importance further underscored by its alignment with the recent breakout area and the 50-day EMA.

"Structurally, the Nifty has maintained its position above its April 26 panic low, which coincided with the long-term 200-week EMA, despite ongoing geopolitical uncertainties and the rise in crude oil prices and bond yields. Consequently, the past six months' price action appears to be forming a potential double-bottom pattern, setting the stage for a durable bottom market," the brokerage said.

ICICI Direct said Nifty had demonstrated strong follow-through after breaking above the multi-month falling trendline, enabling it to reclaim its 100-day EMA after a two-month hiatus. Consequently, the index retraced its six-week decline within just two weeks, signalling a significant improvement in its price structure.

Going forward, sustained performance above the 23,500 breakout level following the US midterm election outcomes will be essential to validate this recovery and establish a stronger foundation for further upward momentum, the brokerage said.