4.10pm: Markets end winning streak
US markets lost their spark today and nursed heavy losses as results of the midterm elections provided no clear answers about who would control Congress yet.
By the close the Dow Jones Industrial Average was down 647 points, or 1.95%, to 32,514, the S&P 500 tumbled 80 points, or 2.1%, to 3,749, and the Nasdaq Composite slid 263 points, or 2.5%, to 10,353.
The forecast red wave failed to materialise as the Democrats polled better than forecast leaving the race for the Senate on a knife-edge.
The electoral impasse saw markets slide after three consecutive days of gains with investors switching their mindset from politics to economics ahead of key CPI numbers tomorrow which will give a further indication as to whether the Fed’s rate rising moves are taming inflation.
“Inflation is enemy number one for the Fed, and if you see the core CPI print creep up, I believe that the market would have a negative reaction to that,” AllianzIM’s Johan Grahn said.
In corporate news Meta Platform Inc’s shares rose 5.2% after the owner of Facebook announced 11,000 job cuts but Disney stock tumbled 13.1% as results missed forecasts despite strong Disney+ subscription numbers.
12.05pm: Traders hunker down
The major US indices were in the red at midday while the dollar edged up as results from the American midterm election continue to come in and thoughts turn toward tomorrow’s US inflation data.
At midday, the S&P 500 was down by 0.8% at 3,798, the Nasdaq Composite was down by 1% at 10,502, while the Dow Jones also was down by 0.8% to 32,902 points.
Chris Beauchamp, chief market analyst at online trading platform IG, said with the all-important US inflation reading still to come this week, most traders are opting not to push their luck too far.
“On Wall Street, US indices are weaker after recent gains, and without many earnings to drive them, they too have hunkered down ahead of the CPI reading tomorrow," Beauchamp wrote in a report. "After the busy weeks of October and early November both the buyers and sellers are generally exhausted."
He noted the US dollar has managed to stem its losses.
“Dollar bulls will be on the lookout tomorrow for reasons to jump back into one of 2022’s standout performers, with the focus once again on core CPI and any sign that inflation remains solidly entrenched despite the Fed’s best efforts to bring it down,” Beauchamp wrote.
At midday, the US dollar index was up by 0.4%
The major movers at noon included Meta Platforms, up over 8%, after the Facebook parent announced it would lay off 11,000 employees in order to cut costs. Cloud services company Akamai Technologies was up by 6.6%, and homebuilder D R Horton was up by 6.5%.
On the downside, EV manufacturer Lucid Group skidded by over 18%, hitting a new 52-week low, after it reported a 3Q earnings loss of over 21% yesterday. Walt Disney was down by 11.7% on a fiscal 4Q earnings loss, with revenue down by 5% and an EPS forecast miss of 90%.
9.35am: Attention turning to inflation data
US stocks fell at the open after three days of gains as investors await the results of yesterday’s midterm elections and look ahead to key US inflation data due on Thursday.
Just after the market opened, the Dow Jones Industrial Average had shed 241 points or 0.7% at 32,920 points, the S&P 500 was down 32 points or 0.8% at 3,796 points, and the Nasdaq Composite had lost 112 points or 1% at 10,504 points.
Forex.com market analyst Fiona Cincotta said the midterm elections had not been the walk in the park that the Republicans might have expected, and Biden appears to have avoided a worst-case scenario.
“Still, the Republicans are set to win the House of Representatives, and the Senate is still too close to call,” she said. “The uncertainty is cresting a slight risk-off mood, although this could also be nerves ahead of tomorrow’s inflation data.”
Also weighing down market sentiment was disappointing data from China, where inflation has eased from a 29-month high to 2.1% and the producer price index fell for the first time in almost two years.
“In most countries, falling inflation would be well received; however, in China, this is down to falling demand amid COVID lockdowns and slowing global growth, neither of which are for cheering,” Cincotta said.
In terms of major movers, Facebook’s parent company Meta Platforms Inc (NASDAQ:FB) shares jumped by 5.5% at the open on the news that the tech giant would be slashing its workforce by 13%, representing about 11,000 jobs, amid higher costs and ad revenue declines.
The Walt Disney Company (NYSE:DIS), on the other hand, tumbled about 11.4% after posting a quarterly earnings miss on both the top and bottom line, including larger-than-expected losses attributed to its push into streaming video.
6.30am: Divided government?
US stocks are expected to open lower on Wednesday, giving up some of their recent gains, as investors focus on the results emerging from the US congressional midterm elections.
Futures for the Dow Jones Industrial Average were 0.3% lower in pre-market trading, while those for the S&P 500 were down 0.2%, and contracts for the Nasdaq-100 shed 0.2%.
As the results are still coming in, it remains to be seen which party will gain control of the Senate and House of Representatives. Expectations of a runaway win for the Republicans are not materializing but many watchers are still betting on split results.
“From an investor point of view, a Republican win in both chambers is a good outcome for the stocks. And even a divided government, which we will surely get, is better for the stocks than a Democratic win,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
In a blow to Republican hopes, Democrat John Fetterman defeated Republican Mehmet Oz for the key Senate seat in Pennsylvania but as things stand Republicans are leading the race for the control of the House of Representatives.
How the outcome of the midterms will play out for the economy and the path for interest rates remains to be seen. 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.
On the economic data front, the 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%.
A higher-than-expected outcome may end up weighing on stocks as it would strengthen the case for aggressive interest rate hikes.
Contact the author at jon.hopkins@proactiveinvestors.com