4.07pm: US markets on the rise as investors bet on political stalemate
US markets advanced strongly as trading headed to the close to net a third straight day of gains.
At the close the Dow Jones Industrial Average was up 335 points, or 1.02%, to 33,162, the S&P 500 advanced 21 points, to 0.56%, to 3,828 and the Nasdaq Composite rose 52 points, or 0.49%, to 10,616.
Investors were eyeing the outcome of midterm elections that will determine control of the US Congress, betting on a political stalemate that could prevent major policy changes.
"On balance, financial markets like gridlock. To the extent that change will be slow and evolving, a divided government of course provides that backdrop," said Terry Sandven, chief equity strategist at US Bank Wealth Management in Minneapolis.
Among stocks on the move was drugmaker Amgen Inc where shares climbed almost 6% to a record high after the company reported positive data related to its cholesterol drug and obesity treatment.
But shares of Lyft plummeted 23% after a mixed earnings report, with the rideshare company reporting better than expected adjusted earnings per share but below forecast revenues.
Tripadvisor dropped 16% after its quarterly earnings came in below expectations. The company cited currency fluctuations as a driver of the performance while noting demand for travel remained strong.
12.05pm: Markets love political predictability
The US indices edged higher, as investors eyed possible political gridlock resulting from midterm elections today, as it would make major economic policy shifts less likely.
At midday, the S&P 500 was up by 1.3%% at 3,854, the Nasdaq Composite was up by 1.5%% at 10,721, while the Dow Jones soared higher by over 500 points or 1.6% to 33,353 points.
Josh Mahony, market analyst at online trading platform IG, said midterm elections bring hope that US President Joe Biden’s plans will be scuppered by political gridlock, while energy prices ease back to lessen fears of an inflationary spike.
“As has typically been the case historically, we are expecting to see the President lose dominance of Congress, with a swing back in the direction of the Republicans. Donald Trump’s promise of a big announcement next week also brings a change in tone that could benefit financial markets,” Mahony wrote in a report.
Mahony added that Biden’s expansionary outlook has already been curtailed thanks to his slim majority in the US House of Representatives and the Senate.
“However, the loss of either would once again ensure that Biden cannot go ahead with fiscal expansion measures which would also be inflationary by nature. Meanwhile, Donald Trump’s potential re-entry into public life could similarly see a shift towards the middle ground with Russia, as markets consider how a second Trump term could bring a compromise with Putin to end the war,” Mahony wrote.
Meanwhile, he said that energy markets are expected to benefit once Chinese demand comes back online, with markets looking for signs that the current series of COVID-related lockdowns are shifting to a less Draconian approach.
“For now, it seems unlikely that the Chinese Zero-COVID policy is on its way out, with authorities now shifting their focus on bringing down cases in the manufacturing hub of Guangzhou,” he wrote.
The major movers at midday included Solar Edge Technologies, up by over 17% on 3Q earnings reported yesterday, while Welltower was up by 9.8%, and global logistics company Expediters International of Washington rose by 9%.
Also at midday, Bitcoin gained by US$1,300 on news crypto exchanges Binance and FTX reached a deal to fix a "liquidity crunch."
On the downside, games publisher Take-Two International Software slid by 10%, hitting a new 52-week low, while Constellation Energy was down by 5.4% and medical device manufacturer Medtronic fell by 4.2%.
9.35am: Is the government headed for gridlock?
US stocks made modest gains at the open ahead of the midterm elections today, with the economic calendar otherwise quiet.
Just after the market opened, the Dow Jones Industrial Average had added 110 points or 0.3%, the Nasdaq Composite was up 7 points or 0.1 % at 10,572 points, while the S&P 500 was flat at 3,808 points.
Lyft shares had sunk 16% after the ride-share provider reported passenger numbers below analyst expectations despite price hikes seeing the company achieve record quarterly revenue.
Forex.com market analyst Fiona Cincotta said the critical midterm elections could result in a gridlock government.
“Should Republicans take control of Congress, or at least the House of Representatives, it would result in gridlock in Washington, making it much harder for President Biden to push through his agenda, which includes antitrust regulations on big tech and social spending programmes, which could add to the inflationary environment,” she said.
Cincotta noted with additional spending risks moderated, the Fed may need to do less to rein in inflation, which is good news for stocks.
“Additionally, historically speaking, the S&P 500 has booked high annualized returns when there is a Democrat in the White House, and Republicans take control of Congress.”
6.30am: All eyes on midterms
US stocks are expected to open modestly higher on Tuesday as investors focus on the US congressional midterm elections.
Futures for the Dow Jones Industrial Average were 0.1% higher in pre-market trading, while those for the S&P 500 were up 0.1%, and contracts for the Nasdaq-100 gained 0.3%.
“Investors are tense and undecided into the US midterm elections today," said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
Expectations point to a divided government between the White House and Congress.
She noted that US President Joe Biden has not had an easy term so far what with Covid, the war in Ukraine and higher oil prices, inflation and interest rates.
“The midterm elections won’t change anything for the Fed policy. It will continue tightening its policy, raising the rates - by slower increments but as high as needed to bring inflation back on – at least – a healthy path toward its 2% policy target,” said Ozkardeskaya.
US rate setters have delivered four consecutive interest rate hikes of 75 basis points this year as inflation remains stubbornly close to 40-year highs. Investors fear the higher interest rates will choke economic growth.
Any change in the government landscape will have an impact on the way the political decisions are made in the US, and on the way US debt is managed, noted Ozkardeskaya.
“The Fed’s aggressive rate hikes make the huge US debt more expensive by the day. The US debt to GDP ratio stood at a touch below the 125% mark in June this year. And it’s increasing steadily – something Republicans don’t like,” she added.
The US debt burden could stop the Democrats from putting in place many economic reforms that they would have otherwise if Republicans are sufficiently strong to block them moving forward, she said.
“On the other hand, empirical data shows that the US stock markets performed better with a divided government in the years following the same party controlling the Senate, the House and the Presidency,” noted Ozkardeskaya
On the economic data front, focus will be on US inflation data on Thursday. The headline figure is expected to have eased to 8.0% in October while core inflation is seen easing to 6.5%.
Contact the author at jon.hopkins@proactiveinvestors.com