Dow, S&P 500 and Nasdaq rise ahead of midterm elections

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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