Midterms Shake Markets: Oil Falls 13%, Gold Tops $4,000

Week of November 2 to November 6, 2026

One election, and almost every market changed direction. After Tuesday's US midterms, oil lost about 13% in a week, gold jumped back above $4,000, and the Dow posted its best day since April 2025 followed immediately by its worst. Then a blowout jobs report on Friday reminded everyone that the Fed's December decision is still very much alive. Here is how one political event flowed through seven markets, and why the reactions were so different from one another.

Democrats won control of both chambers of Congress in Tuesday's midterm elections. Markets did not react to the politics itself so much as to what traders believed it meant for two specific stories: the war with Iran and the AI boom. On the first, investors bet that the new balance of power in Washington makes a deal with Iran more likely. Oil fell 8% on Wednesday alone, and a senior Iranian official said the Strait of Hormuz could reopen within 48 hours if the US lifts oil sanctions and releases frozen assets. No deal has been signed, and attacks on tankers continued all week, but markets moved quickly to remove the war premium that had built up in October.

Lower oil prices set off a chain reaction. Less expensive oil means less inflation pressure, which pulled Treasury yields and the dollar lower on Wednesday. That combination gave gold its best day in three months. Stocks rallied too, with the Dow jumping more than 1,500 points. But the relief lasted one day. On Thursday, investors focused on a second consequence of the election: newly elected officials in several states, including Texas, have pledged to pause or restrict new data center construction. Combined with weak chip forecasts, that triggered a wave of AI selling. The Dow fell 1,833 points, and the Nasdaq dropped 5.5% into correction territory.

Friday brought the data back into focus. The US economy added 165,000 jobs in October, almost three times the forecast of around 60,000, and unemployment fell to 4.1%. The weak September report we covered at the start of October was revised up to 60,000 from 29,000. A strong labor market gives the Fed more room to keep hiking, and markets still price about an 80% chance of a hike on December 9. The dollar rallied on Friday as a result.

The lesson this week is about risk premiums. Oil rose about 15% in October largely on fear of what might happen in the Middle East. When traders decided that fear was less likely to come true, much of that premium disappeared in a few days, before anything had actually changed on the ground. Prices built on fear can fall just as fast as they rise, which is why it helps to ask how much of any move is based on events that have already happened, and how much is based on expectations.

The Dow had one of its most volatile weeks of the year. On Wednesday, it jumped 1,569 points, its best day since April 2025, helped by falling oil prices and the end of election uncertainty. On Thursday, it gave back all of that and more, falling 1,833 points as the AI sell-off intensified. Concerns that new state leaders could slow data center construction, a weak forecast from Qualcomm and Micron pausing a planned memory plant all hit chip and AI-linked stocks at once. The Dow has less exposure to chips than the Nasdaq, but it still includes several large AI-linked companies. It finished the week roughly 5% below its August 5 peak.

Gold had its best week in some time, rising about 4.5% and climbing back above $4,000. The big move came on Wednesday, when gold futures jumped 3.4%, their largest daily gain in three months. The reason connects directly to oil: as the war premium fell out of crude, fears of energy-driven inflation eased, and both Treasury yields and the dollar dropped. That lowered the cost of holding gold. Steady demand from central banks, which bought a net 321 tonnes in the third quarter, added support underneath the market. Gold slipped on Friday after the strong jobs report lifted the dollar, a reminder that the Fed remains its biggest headwind.

Oil had its steepest weekly decline in months. WTI fell from above $100 on Monday to $90.83 by Friday, while Brent settled at $98.32. The drop started after the midterms, as traders bet that Washington would now pursue a deal with Iran, and it accelerated on reports that the two sides were moving closer, with Tehran showing flexibility on parts of its nuclear program. Iran also signaled that Hormuz could reopen quickly in exchange for sanctions relief. Still, nothing has been signed, Iran reported three more attacks on tankers on Thursday, and some analysts see a high chance that fighting resumes. The gap between Brent and WTI narrowed to about $7.50, from more than $13 two weeks ago, as the Middle East risk premium faded.

The euro rallied on Wednesday as the dollar fell after the election, reaching about 1.1229, then gave it all back on Friday after the strong US jobs report. For Europe, lower oil prices are good news: the region imports most of its energy, so cheaper oil eases pressure on both inflation and growth. That should eventually help the euro. For now, though, the gap between a strong US economy and a Fed still leaning toward another hike is the bigger force. The pair closed below the 1.1155 area that acted as a floor through most of October.

The Bank of England raised its rate to 4.00% on Thursday, its first hike since 2023, in an 8 to 1 vote. One member, Catherine Mann, wanted a bigger half-point increase. Governor Andrew Bailey said that without real progress toward ending the Middle East conflict, he could see the argument for another increase, and the Bank warned inflation could approach 5% by mid-2027. The pound barely moved, since markets had priced the hike as almost certain. It slipped on Friday along with other currencies when the strong US jobs report lifted the dollar. The next BoE decision is December 17.

The pair dipped on Thursday during the stock sell-off, as the yen briefly attracted safe-haven demand, then jumped back above 158.50 after Friday's US jobs report. Strong US hiring supports the Fed's case for another hike, which keeps the interest rate gap between the US and Japan firmly in the dollar's favor. The Bank of Japan has signaled a possible hike in December, but as we saw last week, a hawkish BoJ is not enough on its own when the Fed is also leaning toward tightening.

The Canadian dollar had a difficult week. A 13% drop in oil removed one of its main supports, and Friday brought two reports that both worked against it. US payrolls came in far stronger than expected, while Canada lost 4,700 jobs in October when economists had forecast a gain of 13,600, and unemployment rose to 6.7%. That combination pushed USD/CAD to its highest level since October 20. The oil and loonie relationship has now held for four straight weeks, this time working in reverse.

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This week showed how quickly a market's mood can flip. The same election result sparked one of the best days of the year and one of the worst within 24 hours, and oil gave back most of October's gains in a few sessions. In weeks like this, the most useful skill is not speed but patience: letting the first reaction pass, watching which moves hold, and keeping positions small enough that a sudden reversal does not force a decision. Next week's CPI report will test the Fed story again, so steady risk management remains the best preparation.

Fed'n Markets

Sources: US Bureau of Labor Statistics, Bank of England, Statistics Canada, Reuters, CNBC, Bloomberg, CNN, Yahoo Finance, EnergyNow, CME FedWatch, Financial Modeling Prep (closing price data).

FedAndMarkets provides educational market context only. Nothing in this newsletter is financial advice or a recommendation to buy or sell any asset.

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