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Dow Jones closes 400 points higher as investors eye mid-term elections

Last updated: 16:13 07 Nov 2022 EST, First published: 06:43 07 Nov 2022 EST

wall street traders

4.12pm: US markets close the day in buoyant fashion

US markets closed sharply higher on Monday ahead of a busy week of political and economic news.

At the close the Dow Jones Industrial Average was up 426 points, or 1.31%, at 32,829, the S&P 500 gained 37 points, or 0.97%, to 3,807 and the Nasdaq Composite advanced 89 points, or 0.85%, to 10,565.

Tuesday's mid-term elections will determine which party will control Congress, and affect the direction of future spending. Democrats currently control the House, and have a majority in the Senate.

Investors could approve of a potential gridlock that may come out of the mid-term elections as a Democratic president, with a Republican or split Congress, has historically meant above-average gains, according to RBC’s Lori Calvasina in a Monday note.

On the economic front, investors are looking ahead to Thursday’s consumer price index report which will give further insight into how far the Federal Reserve needs to go to bring down inflation.

A hot report could signal to investors that a pivot from a prolonged period of higher interest rates may not be imminent.

Shares in Meta Platforms Inc (NASDAQ:FB). rallied 6.54% following a report in The Wall Street Journal that it was set to announce huge job cuts this week.

12.05pm: S&P, Nasdaq run flat

The Dow Jones edged higher while the S&P and Nasdaq Composite both drifted into the red at the noon bell, as investors tiptoed back to stocks after the big events of the past few weeks, but continued to eye the upcoming US mid-terms and consumer price index data.

At midday, the S&P 500 was down by 0.05% at 3,768 and the Nasdaq Composite was down by 0.4% at 10,431, while the Dow Jones rose by 0.4% at 32,536 points.

Chris Beauchamp, chief market analyst at online trading platform IG, said investors were in a cautiously optimistic mood.

“The latest US jobs report and a denial of any easing of China’s zero COVID measures have failed to dent market optimism it seems, a sign perhaps that the buyers have control for the time being," Beauchamp wrote in a note.

"After the earnings and central bank decisions of recent weeks, calm has descended across markets, which perhaps offers hope that a decent rebound is in the works." 

US mid-term elections historically have been followed by a year-end rally in the markets. That said, there is a catch this week, according to Beauchamp.

“The one cloud on the horizon is US CPI, but if the market’s bullish mood is this strong then any hint of weakness could lead to an acceleration in the rally’s momentum,” Beauchamp wrote.

The major movers at midday included global healthcare company Viatris, up over 13% on beating 3Q earnings estimates, along with US natural gas producer EQT up by 6.4%, while Meta Platforms rose by 5.4%.

On the downside, Dominion Energy and Expedia (NASDAQ:EXPE) Group both fell by over 7%, followed by cyber safety provider NortonLifelock, down by 6%, and Enphase Energy, which slid by 5.6%.

9.35am: Republicans’ success at midterm elections could send equities higher, analyst says

US stocks edged higher on Monday, extending Friday’s gains, as investors look ahead to tomorrow’s midterm elections.

Just after the market opened, the Dow Jones Industrial Average had added 142 points or 0.4% at 32,545 points, the S&P 500 was up 12 points or 0.3% at 3,783 points, and the Nasdaq Composite had gained 24 points or 0.2% at 10,496 points.

In terms of major movers, Apple stock had slipped about 1.4% at the open on the news that it would be shipping fewer iPhones following a COVID-19 outbreak at Foxconn’s iPhone assembly plant in China.  

Meta Platforms Inc (NASDAQ:FB) on the other hand had gained about 3.3% on reports the social media giant is set to slash thousands of jobs.  

Forex.com market analyst Fiona Cincotta said with no high-impact US data due to be released today, attention had turned to Fed speakers who could shed more light on what to expect from the central bank in coming meetings and to tomorrow’s elections.

She noted that the midterm election could prove to be a catalyst for higher equities.

“The Republicans are expected to perform well at the expense of the Democrats,” Cincotta said. “Should Republicans take back control of the House, and maybe even the Senate, political gridlock will be expected for the next two years, a situation which historically speaking has been favorable for stocks.”

6.30am: Cautious start to big week

US stocks are expected to open higher across the board ahead of a busy week that includes the US congressional midterm elections and key data on inflation.

Futures for the Dow Jones Industrial Average were 0.5% higher in pre-market trading, while those for the S&P 500 were up 0.6%, and contracts for the Nasdaq-100 gained 0.6%.

“Let’s admit… Joe Biden didn’t have an easy mandate,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

“First the pandemic, and then the war in Ukraine, and the energy crisis, and the rising inflation, and the rising interest rates, the turmoil in financial markets, skyrocketing mortgage rates, gas prices … it has been a terrible mix for hoping to see a stunning support for these midterms,” she added.

As things stand, expectations for this week’s midterms point to a divided government between the White House and Congress. In practical terms, that would mean more political impasse and tighter maneuver margin for policies, and in turn, slower economic growth, she explained.

“But historical data tells us that the stock markets performed better with a divided government in the years following a same party controlling the Senate, the House and the Presidency.”

On the economic data front, headline US inflation, due for release on Thursday is expected to have eased to 8.0% in October, core inflation is seen down to 6.5% from 6.6% printed a month earlier.  

“Stronger-than-expected inflation data could send global stocks lower by the end of this week. Therefore, gains, if any, will likely be vulnerable to a potentially unpleasant US inflation data by Thursday,” added Ozkardeskaya.

“And if the data is better than expected? Then, we could see a market rally. Investors are impatient to buy the dip at the current levels. Even if the data beats expectations slightly, it should be enough to send stocks higher.”

Last Friday, investors took in stride a stronger-than-expected non-farm payrolls number, which showed the US economy added 261,000 new non-farm jobs in October.

Also last week, US rate setters raised interest rates by another 75 basis points and US Fed chief Jerome Powell noted there is no room for complacency in the fight against inflation.

Contact the author at jon.hopkins@proactiveinvestors.com

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