by U.S. stocks fell on Wednesday after three days of gains as investors weighed mixed reviews of midterm election results and highly anticipated inflation data.
The S&P 500 (^GSPC) fell more than 2%, while the Dow Jones Industrial Average (^DJI) fell nearly 650 points, or about 2%. The technology-focused Nasdaq Composite (^IXIC) pulled down almost 2.5%, or 260 points.
Investor optimism during the three-day rally in stocks was based on expectations that Republicans would gain ground and create gridlock in Washington. But the Republican red wave did not materialize in the US midterms. Democrats managed to flip a crucial Senate seat when John Fetterman defeated Mehmet Oz in the Pennsylvania race. As of late Wednesday, control of both the House and Senate has remained balanced.
Georgia’s U.S. Senate race, meanwhile, is heading into a runoff, with neither major candidate on track to win a majority of the vote.
According to LPL Financial, the year after a midterm election usually produces the highest stock returns.
“Going back to 1951, with a Democratic president, Republicans or a divided Congress, the two most likely scenarios in this election, the S&P 500 has averaged over 17 percent, compared to an overall average of just over 12 percent,” Barry Gilbert. asset allocation strategist at LPL Financial, wrote in a note.
The outcome of the interim results may not be known for days or weeks, but Wall Street professionals do not expect a big movement in the market.
“We expect the impact of the election to tilt the market positively, in part because we have it behind us,” Gilbert added. “For the market, the impact of policy is likely to be small, and market participants will continue to focus more on central bank policy and inflation.”
At this point, investors will turn their attention to Thursday morning’s inflation report, when the Bureau of Labor Statistics releases the Consumer Price Index (CPI) for October. 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 remains well above the Fed’s comfort zone.
“We’re still well above that 2 percent target,” Rebecca Felton, senior market strategist at RiverFront Investment Group, told Yahoo Finance Live on Tuesday. “So, we don’t think the Fed will ease at any point in the near future. And so interest rates will stay higher for longer and inflationary pressures will stay significantly higher for longer.”
In corporate news Wednesday, Meta Platforms ( META ) said the social media giant would cut more than 11,000 jobs, or about 13 percent of its workforce, as the company restructures to cope with a collapsing digital advertising market. Disney ( DIS ) posted weaker-than-expected fourth-quarter results on Tuesday, with its streaming business leading to wider losses that offset strong performance at its theme parks. Disney’s stock fell more than 13 percent.
Elsewhere, top U.S. homebuilder DR Horton Inc. ( DHI ) reported fourth-quarter results that showed buyers canceled nearly a third of deals, the latest red flag for the housing market. Tesla’s stock also fell on Wednesday after the filing, according to which CEO Elon Musk sold 19.5 million shares between 4 and 8. November. The deal comes after he bought Twitter for $44 billion.
On the earnings side, Rivian (RIVN), Wynn Resorts (WYNN) and Bumble (BMBL) are among the companies reporting earnings on Wednesday.
Cryptocurrencies were under pressure as investors digested news that crypto exchange Binance said it would drop its bid for rival FTX after reviewing the company’s structure and books. Bitcoin fell more than 10% to trade to its lowest level in two years.
Stocks tied to cryptocurrencies also took a hit. Shares of cryptocurrency exchange competitor Coinbase (COIN) fell 5.3 percent. Robinhood Markets (HOOD) fell more than 7%. According to an SEC filing in May, FTX founder Sam Bankman-Fried bought 7.6% of the company’s Class A shares. In an interview reported by the Wall Street Journal, he said his company is open to partnerships with Robinhood.
On the bond market, the 10-year government bond yield rose to around 4.1 percent on Wednesday. In the oil market, Brent crude, the international benchmark, fell 1.1% to $94.35 a barrel, extending losses for a third straight day, with the dollar also erasing losses.
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Dani Romero is a reporter for Yahoo Finance. Follow him on Twitter @daniromerotv
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