U.S. stocks plummeted Wednesday after three days of gains, as investors mulled over a mixed verdict from the midterm election results and highly anticipated inflation data looms on the docket.
The S&P 500 (^GSPC) shed over 2%, while the Dow Jones Industrial Average (^DJI) fell by nearly 650 points, or roughly 2%. The technology-heavy Nasdaq Composite (^IXIC) dragged down by almost 2.5%, or 260 points.
Investors’ optimism during stocks' three-day rally was built on expectations that Republicans would gain ground and create gridlock in Washington. But the Republican red wave failed to materialize in the U.S. midterms. Democrats managed to flip a crucial Senate seat, with John Fetterman beating Mehmet Oz in the Pennsylvania race. As of late Wednesday, both House and Senate control remains in the balance.
Georgia's U.S. Senate race, meanwhile, is heading to a runoff, with neither major candidate on track to win a majority of votes.
The year after midterm elections tends to see the highest equity returns, according to LPL Financial.
“Going back to 1951, a Democratic president with a Republican or split congress, the two most likely cases this election, has seen an average S&P 500 Index return of over 17% versus an overall average of just over 12%,” Barry Gilbert, asset allocation strategist at LPL Financial, wrote in a note.
The final outcome of the midterm results may not be known for days or weeks, but Wall Street pros aren’t expecting a big move in markets.
“We expect the impact of the election to tilt the market positive, partly because we’ll have it behind us,” Gilbert added. “As far as markets are concerned, the policy impact is likely to be small, and market participants will continue to be more focused on central bank policy and inflation.”
To that point, investors will turn their attention to Thursday morning's inflation report, as the Bureau of Labor Statistics releases the Consumer Price Index (CPI) for October. Economists surveyed by Bloomberg expect headline CPI at an annual rate of 7.9%, down from 8.2% the month before. Even if the report shows prices starting to moderate, core CPI remains far above the Fed’s comfort zone.
“We are still far above that 2% target,” Rebecca Felton, RiverFront Investment Group senior market strategist, told Yahoo Finance Live on Tuesday. “So, we don't believe that the Fed is going to ease up at any point in the near term. And so rates will stay higher for longer and inflationary pressures clearly are likely to stay higher for longer, too.”
In corporate news on Wednesday, Meta Platforms (META) said the social media giant would cut more than 11,000 jobs, or about 13% of staff, as the company restructures to cope with the slumping digital ad market. Disney (DIS) posted weaker-than-expected fourth quarter earnings Tuesday, with the streaming business resulting in wider losses that offset strong performance at the theme parks. Disney stock shed more than 13%.
Elsewhere in markets, the largest U.S. homebuilder D.R. Horton Inc.'s (DHI) reported fourth-quarter earnings that showed buyers canceled nearly a third of deals, the latest red flag for the housing market. Tesla stock also fell Wednesday following a filing that showed CEO Elon Musk sold 19.5 million shares from Nov. 4-8. The sale came after he bought Twitter for $44 billion.
On the earnings front, Rivian (RIVN), Wynn Resorts (WYNN) and Bumble (BMBL) are among the companies set to report earnings Wednesday.
Cryptocurrencies were under pressure as investors digested the news that crypto exchange Binance said it will walk away from an initial offer to acquire its competitor FTX after a review of the company's structure and books. Bitcoin dropped more than 10% to trade at its lowest level in two years.
Stocks tied to cryptocurrencies also took a hit. Cryptocurrency exchange competitor Coinbase (COIN) shares fell 5.3%. Robinhood Markets (HOOD) tumbled over 7%. According to an SEC filing in May, Sam Bankman-Fried, the founder of FTX, bought 7.6% of the company’s Class A shares. In an interview reported by the Wall Street Journal, he said his company was open to partnerships with Robinhood.
In bond markets, the yield on the 10-year Treasury note edged up to around 4.1% Wednesday. And in oil markets, Brent crude, the international benchmark, slid 1.1% to $94.35 a barrel, extending losses for the third straight day, while the dollar also erased losses.
