Stocks opened lower on Wednesday after three days of gains as investors ponder a mixed review of the midterm election results and question expectations of who will control the US House and Senate.
The S&P 500 (^GSPC) fell 0.78%, while the Dow Jones Industrial Average (^DJI) fell 0.6%. The tech-heavy Nasdaq Composite (^IXIC) is down as much as 1.09% in early morning trade.
On Tuesday, shares rallied for the third straight day, with major indices fluctuating throughout the day but ending higher at the close.
Investor optimism was based on expectations that Republicans would gain ground and bring about a deadlock in Washington. But the red wave of the Republicans did not appear in the midterms in the USA. Democrats managed to turn over a crucial Senate seat when John Fetterman beat Mehmet Oz in the Pennsylvania race. As of Wednesday morning, control of both the House and Senate remains in limbo.
According to LPL Financial, the year following the midterm elections tends to produce the highest stock returns.
“Since 1951, a Democratic president with a Republican or split Congress, the two most likely scenarios in this election, has averaged an average S&P 500 Index return of over 17% versus an overall average of just over 12%,” Barry Gilbert said. asset allocation strategist at LPL Financial, wrote in a note.
The final outcome of the interim results may not have been known for days or weeks, but Wall Street pros don’t expect much movement in the markets.
“We expect the impact of the election to tip the market positively, in part because we will be past it,” Gilbert added. “As for markets, the policy impact is likely to be small and market participants will continue to focus more on central bank policy and inflation.”
Until then, investors will turn their attention to Thursday morning’s inflation report. Economists polled by Bloomberg expect headline CPI to come in at 7.9% on an annualized basis, up from 8.2% in the previous month. Even as the report shows prices starting to moderate, core CPI remains well above the Fed’s comfort zone.
“We’re still well above that 2% target,” Rebecca Felton, senior market strategist at RiverFront Investment Group, told Yahoo Finance Live on Tuesday. “Therefore, we don’t think the Fed will soften in the short term. And so interest rates will stay high for longer and inflationary pressures are likely to stay high for longer as well.”
In company news, Meta Platforms said the social media giant would shed more than 11,000 jobs, or about 13% of its workforce, as the company restructures to cope with the slumping digital ad market. Disney (DIS) on Tuesday reported weaker-than-expected fourth-quarter results, with the streaming business leading to larger losses offsetting strong performance from theme parks.
On the upside are Rivian (RIVN), Wynn Resorts (WYNN) and Bumble (BMBL) are among the companies set to report earnings on Wednesday.
Elsewhere, cryptocurrencies have been under pressure as investors digested whether crypto exchange Binance will take over rival FTX. Bitcoin fell more than 10% to trade at $17,748.44 — near its lowest level in two years, according to CoinDesk.
On the bond markets, the yield on the 10-year government bond rose to around 4.1% on Wednesday. And in the oil markets, Brent crude, the international benchmark, fell to $93.64 a barrel, extending losses for a third straight day, while the dollar also pared losses.
Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv
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