Stock futures plunge as blue tsunami sweeps red states and data center hot spots. Wall Street usually likes political gridlock—but maybe not this time

A surprisingly strong performance for Democrats on election night sent stock futures down sharply as Wall Street faces the prospect of intense partisanship for the next two years.

Democrats won Senate seats in deep-red South Carolina, Texas and Kansas. And with a victory in Iowa’s Senate race, the party has now regained control of both chambers of Congress.

Democratic gubernatorial candidates also won Texas and Ohio, which have been major hot spots for data centers. But the breakneck pace of development in recent years has fueled a major backlash that could slow down the AI trade.

Futures tied to the Dow Jones industrial average fell 408 points, or 0.79%. S&P 500 futures sank 1.25%, and Nasdaq futures tumbled 2.24%.

Fears of renewed fighting in the U.S.-Iran war have recently weighed on markets, given that President Donald Trump threatened to take action after the midterm elections.

But that’s not the case on Tuesday evening after Trump told the Financial Times that he has no immediate plans to strike Iran, sending oil prices lower.

Wall Street typically prefers divided government as political gridlock prevents one party from going to extremes.

But market veteran Ed Yardeni warned deepening partisanship could turn gridlock into “damaging political paralysis” just as bond investors are growing uneasy about the U.S. debt and deficits.

“A Democratic sweep could complicate negotiations over government spending and the debt ceiling,” he wrote late Monday. “Prolonged shutdowns and fiscal standoffs could push Treasury yields higher, weighing on equity valuations.”

Yardeni also pointed out that Trump has relied heavily on executive authority, which can’t be as easily restrained by a Democratic Congress.

Some of his policies that have rocked financial markets the most, namely tariffs and the Iran war, were carried out without congressional approval, he added.

“Moreover, with the midterms behind him, Trump may feel even less constrained politically and more willing to pursue controversial policies through executive action,” Yardeni said. “Hence, a blue wave could deliver a cold shower for stocks, though we would view a significant selloff as a buying opportunity given the remarkable strength of the economy and corporate earnings.”

But given that many Democrats will represent traditionally Republican states of House districts, they may have less of an appetite for partisan warfare and instead try to seek common ground with Trump.

Christopher Hodge, chief U.S. economist at institutional brokerage firm Natixis CIB Americas, said in a note on Tuesday that Democrats could use their leverage in debt-ceiling or shutdown talks to gain concessions on healthcare spending or green energy subsidies.

He also cautioned that Democrats shouldn’t “overread their mandate, despite their stunning wins—including in GOP strongholds.

“The results from tonight appear to be as much as a rebuke of the Republicans as an embrace of Democrats,” he added. “Democrats outperformed in many Republican-leaning states, while more purplish states with more moderate Republican candidates are more competitive than a ‘blue wave’ would suggest.”

This story was originally featured on Fortune.com