Stock indexes fell on Wednesday as uncertainty around the outcome of a tightly contested midterm election weighed on the mood, with investor focus shifting to Thursday’s inflation data for clues on the path of future interest rate hikes.
In morning trading, the Dow Jones Industrial Average slid 225 points, or 0.7%, to 32,942, the S&P 500 was down 0.8%, and the Nasdaq was down 1%.
Republicans made modest gains and were favored to win control of the House of Representatives, though control of the Senate may once again be decided in Dec. 6 runoff elections in Georgia. Many of the most competitive races were too close to call.
“There is a likelihood that we have divided government… the general rule of thumb as far as markets are concerned is gridlock is good — fewer policy changes and less risk to individual sectors,” said Art Hogan, chief market strategist at B. Riley Financial.
A split government, with a Democrat in the White House, has historically been favorable for stock markets as it paves the way for partisan standoffs on contentious policy changes such as the federal debt limit.
The S&P 500 has posted a gain in every 12-month period after the midterm vote since World War Two, according to Deutsche Bank.
Though a surprise victory for Democrats could raise concerns about tech-sector regulation as well as budget spending that could add to red-hot inflation, according to market strategists.
With the election outcome still uncertain, investors were focusing on Thursday’s inflation data, which is expected to put the limelight on the Federal Reserve’s tightening cycle.
“CPI is one of the more important inputs in terms of the inflation environment. You’d be hard pressed to find many investors that want to make a big bet in front of (the report),” said Hogan.
Traders currently see a 57% chance of that the Fed would raise rates by 50 basis points in December to 4.25%-4.5%, according to CME Fedwatch tool.
Meta Platforms climbed 8% as the Facebook-parent said it would let go of 13% of its workforce, or more than 11,000 employees, in one of the biggest tech layoffs this year.
Walt Disney slumped 10.7% as the entertainment giant racked up more losses from its push into streaming video.