Stocks rallied Wednesday as investors were relieved to see that the midterm elections went largely as they expected they would. Big-name technology and consumer…
Stocks rallied Wednesday as investors were relieved to see that the midterm elections went largely as they expected they would. Big-name technology and consumer and health care companies soared as the S&P 500 index closed at its highest level in four weeks.
Democrats won control of the House of Representatives while Republicans kept a majority in the Senate, as most polls had suggested. It’s not clear how the divided Congress will work with Republican President Trump, but if the possibilities for compromise and big agenda items seem limited, Wall Street is fine with that because it means politics is that much less likely to crowd out the performance of the strong economy.
“The market likes when what it expects to happen happens,” said JJ Kinahan, chief markets strategist for TD Ameritrade. “We haven’t had that happen in a little while, when you think about major events like Brexit or the presidential election.”
The S&P 500 index climbed 58.44 points, or 2.1 percent, to 2,813.89. The index has risen six out of the past seven days to recover most of the losses it had in October.
The Dow Jones industrial average rose 545.29 points, or 2.1 percent, to 26,180.30. The Nasdaq composite was up 194.79 points, or 2.6 percent, to 7,570.75. The Russell 2000 index of smaller-company stocks added 26.06 points, or 1.7 percent, to 1,582.16. Three-fourths of the stocks on the New York Stock Exchange traded higher.
Historically, markets have performed well after midterm elections and with split control of Congress.
Stocks are off to a strong start in November, and the S&P 500 is up 3.8 percent so far this month. That follows a swoon in October that knocked the S&P 500 down nearly 7 percent as investors worried about rising interest rates and the U. S.-China trade dispute.
On Wednesday, investors bet on growth. Amazon jumped 6.9 percent to $1,755.49 and Microsoft gained 3.9 percent to $111.96, while Google’s parent company, Alphabet, picked up 3.6 percent to $1,108.24.
Industrial companies made strong gains, but they didn’t do as well as the rest of the market. While some investors hope that Trump and congressional leadership will pass an infrastructure stimulus bill, they’ve had those hopes dashed more than once since he took office.
It’s not clear how the elections will affect the Trump policy that Wall Street might be most concerned about: the trade dispute with China. Trump has imposed taxes of up to 25 percent on $250 billion of Chinese imports and threatened additional tariffs on top of those. Beijing has responded with tariffs on $110 billion of American goods.
A primary concern in Asia is the potential for trade tensions to hobble growth for export-reliant economies.
Economists at S&P Global, Oxford Economics and the Bank of America all agreed that government gridlock will likely result from the Democrats winning control of the House. But they don’t think a stalemate will automatically hinder economic growth.
It’s more likely that government will play less of a role in spurring economic growth in 2019 and 2020. As a result, the health of the global economy, interest rates set by the Federal Reserve, and spending by U. S. consumers and companies will have a bigger impact on determining the pace of growth.
The Federal Reserve, meeting this week, is not expected to raise interest rates, but investors believe it will do so in December.
Banks didn’t rise as much other stocks. Republicans had discussed a new round of tax cuts if they maintained full control over Congress, which would have expanded the government’s deficits further and required it to issue more debt. Government bond yields rose overnight after a batch of strong early results for some GOP candidates, but then headed lower as Democrats’ fortunes improved, making a new tax cut package unlikely.
Rep. Maxine Waters, D-Los Angeles, is expected to become chairwoman of the House Financial Services Committee, which oversees the nation’s banking system and its regulators. Waters has called for more regulation of banks, and has been vocal about Trump political appointees moving to roll back regulations on banks and other financial services companies.
Major indexes in Europe climbed Wednesday. The French CAC 40 jumped 1.2 percent, while Britain’s FTSE 100 gained 1.1 percent. The DAX in Germany rose 0.8 percent.
In Asia, Japan’s benchmark Nikkei 225 fell 0.3 percent while South Korea’s Kospi slipped 0.5 percent. But Hong Kong’s Hang Seng edged 0.1 percent higher.
October is historically a rough month for stocks, though markets usually rise after midterm elections, regardless of how the political landscape may change, because Wall Street is glad to have more certainty.
Democrats’ win in the House means Republicans won’t be able to take another shot at repealing the 2010 Affordable Care Act. Voters in Idaho and Nebraska all voted to expand Medicaid, and the winning gubernatorial candidates in Maine and Kansas also favor expanding Medicaid benefits. Voting on a Medicaid expansion proposition in Utah was too close to call.
Health insurers, hospital operators and Medicaid program operators all jumped, and marijuana stocks jumped after Michigan voted to legalize recreational cannabis and Utah and Missouri voters approved medical marijuana measures.
Oil prices continued to fall. U. S. crude fell to $61.67 a barrel, and Brent crude, the standard for international oil prices, dipped to $72.07 a barrel.