US tech stocks dropped while value shares climbed after a Democratic party win in a key Senate race raised prospects of a bigger fiscal stimulus that could feed through to economic growth and higher inflation.

The benchmark S&P 500 fell 0.5 per cent at the opening bell in New York while the Nasdaq 100, which tracks the largest stocks on the tech-focused index, sank 1.6 per cent. Apple, Netflix and Facebook all opened about 3 per cent lower.

The small-cap Russell 2000 index, which has a high weighting of stocks in economically sensitive industries such as finance and manufacturing, opened 1.7 per cent higher. London’s FTSE 100, where companies in energy, banking, materials and industrials comprise about half the index by weighting, jumped almost 3 per cent.

“The market consensus is that Democrat control of both houses means stimulus and infrastructure spending, so in the near term that means more economic growth,” said Ben Laidler of Tower Hudson Research. “The stocks that are most driven by this are companies in cyclical industries and small-caps, where earnings have been more depressed.”

In a crucial Senate race in Georgia, the Associated Press declared a win for Democratic challenger Raphael Warnock. His fellow Democrat Jon Ossoff clung to a narrow lead with the New York Times forecasting a more than 95 per cent chance of victory.

A Democratic party victory in both run-offs would result in a 50-50 split of the upper house with vice-president elect Kamala Harris able to break the tie in significant votes such as budget resolutions.

Goldman Sachs analysts forecast a Georgia win would enable the Democrats to add $600bn of stimulus spending to the $900bn already agreed by lawmakers late last year.

The yield on 10-year US Treasury bonds added 0.07 percentage points to just over 1 per cent, its highest since March, as investors sold the securities, which are sensitive to inflation expectations.

The Nasdaq 100 gained almost 48 per cent in 2020, as the pandemic boosted tech businesses and lower bond yields prompted investors to place higher valuations on growth companies’ future earnings.

Tech investors have also been wary of a so-called blue sweep because president-elect Joe Biden has campaigned for tougher antitrust rules and taxation for the sector.

“The market is taking a view that we will see more stimulus and this will have to be paid for,” said Stefan Keller, asset allocation specialist at investment house Candriam. “The fear is of higher taxes on the most successful companies of 2020, which are the tech giants.”

In Europe, the continent-wide Stoxx 600 index rose 0.9 per cent, pushed up by shares in the energy and financial services sectors.

Oil prices rose, with global benchmark Brent crude up 0.6 per cent to $53.90 a barrel, around its highest since February 2020. Prices were boosted after Saudi Arabia pledged to cut output in a deal reached on Tuesday evening with fellow producers in the Opec+ group.

Copper climbed to its highest level since 2013, above $8,000 a tonne, boosted by Mr Biden’s plans for a green stimulus because of its use in electric vehicle charging and wind turbines.

“Democrats controlling both houses would mean that they could pass through larger fiscal packages, but with filibuster rules, co-operation is still necessary,” said Sebastien Galy, senior macro strategist at Nordea Asset Management. “Such [a] boost to the economy is . . . the logical move to avoid an economy being stuck in a low-growth environment quite quickly.”

Additional reporting by Henry Sanderson