Stocks rose on Tuesday as investors awaited the outcome of the US midterm elections
The S&P 500 (^GSPC) rose 1.3%, while the Dow Jones Industrial Average (^DJI) was 1.5% higher. The tech-heavy Nasdaq Composite ( ^IXIC ) was up 1.7% in midday trading.
On Monday, US stocks rose ahead of another week of potential market-changing events: corporate earnings, midterm elections and inflation data.
Investors are focused on Tuesday’s midterm elections that will determine control of the House and Senate for the remainder of President Joe Biden’s first term. Historically, Wall Street has preferred a divided Congress or a White House with political gridlock that could hinder major policy changes, which investors see as favorable for stocks.
According to JPMorgan’s latest client survey, 39 percent of respondents disagreed on whether the U.S. midterm elections will be a positive catalyst for risk markets or a non-event, and 21 percent expected a negative impact. Regardless of the winner, some strategists argue that the mid-term results will have a “modest” impact on financial markets.
“The overall short-term impact of the 2022 US midterm elections is quite modest for FX markets,” JPMorgan FX strategist Meera Chandan wrote in a note to clients. “The market should therefore continue to be guided more by the Fed’s monetary policy decisions than by new large financial packages. One wildcard worth noting is the renewed uncertainty around the debt ceiling.”
Another closely watched issue this week is the October inflation data to be published on Thursday. Economists interviewed by Bloomberg expect the consumer price index to be 7.9% in the year, compared to 8.2% in the previous month. Although the report says prices are starting to moderate, the CPI is well above the Fed’s comfort zone.
“The problem is going to be that between the months, I think we’re going to continue to see pretty strong CPI,” Franklin Templeton Fixed Income CIO Sonal Desai told Yahoo Finance Live on Monday. “And I don’t think that kind of combination, along with the relatively strong jobs we got on Friday, will give the Fed much comfort in changing the path that Chairman Powell outlined last week.”
Some Wall Street banks, including UBS, expect the U.S. to enter a “hard fall.” In fact, Federal Reserve Chairman Jerome Powell said last week that the path to a “soft landing” has narrowed because the Fed has not seen inflation fall.
“US economic growth already looked uncertain. The full effects of one of the fastest recalibrations of monetary policy in several decades remain to be seen,” Jonathan Pingle, UBS’s CEO and chief economist, wrote in the bank’s Global Economics & Markets Outlook 2023-2024 report.
“With the US economy still experiencing significant imbalances as a result of the pandemic, we expect 2023 to bring an economic recession or correction. The good news is, we think resolving the tensions will lift the US economy beyond 2023 for better years,” he added.
Meanwhile, in a new note from Goldman Sachs, Chief Economist Jan Hatzius put the probability of a US recession in the next 12 months at 35% amid aggressive central bank tightening.
“We continue to see a very plausible non-recessionary four-step path from the current high-inflation economy to the low-inflation economy of the future,” Hatzius wrote in the note.
The trickle of earnings reports also continued on Tuesday. Among the highlights:
Planet Fitness (PLNT): The gym’s third-quarter result and turnover exceeded expectations and improved its growth prospects for the whole year, as the number of members reached a record and returned to pre-pandemic seasonal trends.
DuPont de Nemours (DD): The chemical giant improved its third quarter result and confirmed its guidance for the whole year.
Norwegian Cruise Line Holdings Ltd. (NCLH): The cruise operator reported a smaller-than-expected third-quarter revenue loss, which exceeded forecasts and reached profitability as an adjusted earnings measure for the first time since the start of the pandemic.
Lordstown Motors Corp. (RIDE): The electric vehicle manufacturer posted a larger-than-expected third-quarter loss on Tuesday. But the stock rallied after iPhone maker Foxconn said it would invest up to $170 million in the startup by buying preferred stock and 18.3 percent of common stock, according to a statement late Monday.
Disney ( DIS ), AMC Entertainment Holdings ( AMC ), Affirm Holdings ( AFRM ), and Lucid Group, Inc. ( LCID ) reported earnings after hours on Tuesday.
In corporate news, Kohl’s announced that CEO Michelle Gass is leaving to become CEO of Levi Strauss & Co. as a result of a change in Kohl’s management.
Elsewhere, cryptocurrency trading fell after Binance, the world’s largest cryptocurrency company, has reached an agreement with Sam Bankman-Fried’s FTX to buy cryptocurrencies for an undisclosed amount. Bitcoin (BTC) is down nearly 57% this year.
On the bond market, the 10-year government bond yield rose 4.205% on Tuesday. The oil market, on the other hand, Brent crude oil, the international benchmark, weakened for a second day and fell to $97.71 per barrel. The US dollar index fell slightly after that falls the most during the last three trading sessions since 2020.
Dani Romero is a reporter for Yahoo Finance. Follow him on Twitter @daniromerotv
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