U.S. stocks tumble with election results still up in the air
Stocks fell on Wall Street Wednesday as results continued to come in for midterm elections with races so tight that it is still too early to tell whether Republicans will win control of one or both houses of Congress.
The S&P 500 was down 80 points, or 1.9%, to close at 3,749. The Dow Jones Industrial Average fell 647 points, or nearly 2%, to 32,514 and the Nasdaq shed 2.5%.
Disney slumped 12.1% and led the broader communications sector lower after it reported financial results that fell well short of analysts' expectations and issued a weak earnings forecast.
Facebook parent Meta Platforms was a bright spot. It surged 7.6% after saying it will lay off 11,000 employees, or about 13% of its workforce, as it contends with faltering revenue and broader tech industry woes. The move comes just a week after widespread layoffs at Twitter under its new owner, billionaire Elon Musk.
Votes still being counted
Votes from the U.S. midterms are still being counted across the country and Wall Street is waiting to see if the balance of power in Washington shifts. The elections could determine how much is done in the next several years in Washington, and possibly beyond. If Republicans gain control of at least one house of Congress, standoffs with the Democratic White House could stymie progress on legislation.
That said, historically the stock market has performed well both after midterms and also when the government is divided between parties, experts say.
"Though the Senate may prove a toss-up with either party only gaining a slight majority, investors should be mindful that history has shown that the two most likely outcomes of this year's midterm elections show an average annual return of approximately 13.0% for the S&P 500 Index," said John Lynch, Chief Investment Officer for Comerica Wealth Management in a note.
"When the dust settles, the net change in the number of seats held by each party looks to be fairly small," noted Brad McMillan, chief investment officer for Commonwealth Financial Network on Wednesday.
"Politically, those small changes could have large effects. But the economic results are likely to be much less," said McMillan, who believes the tight split in both houses regardless of which party is in control ensures that fiscal policies will stay relatively the same and provide the stock market the certainty it craves.
"We will not see anything even vaguely controversial in this Congress, which means we pretty much know that current fiscal policies will remain in place: no tax cuts and no major spending bills for the next two years. For better or worse, that gives some certainty around a significant part of the economic playbook. And that is a good thing, from a market perspective," he said.
Stubborn inflation
Wall Street's main concern remains continuously hot inflation and the Federal Reserve's fight against high prices that have been squeezing businesses and consumers. The central bank has been aggressively raising interest rates throughout the year to slow the economy and tame inflation, but the strategy risks going too far and bringing on a recession. Investors have been closely watching economic data for any hints that inflation could be cooling enough for the Fed to consider easing up on its rate increases.
The central bank has said that it might soon pare back the size of its increases, but warned that it may ultimately hike rates higher than expected because of just how stubborn high inflation has been. The Fed has already raised its key overnight rate to a range of 3.75% to 4%, up from virtually zero in March, and more investors are expecting it to top 5% next year.
"This is like a marathon and we're in the early part of it," said Sameer Samana, senior global market strategist at Wells Fargo Investment Institute.
Investors await inflation report
Investors will get an important update on inflation Thursday when the government releases its report on consumer prices for October. Economists expect the report to show a continued, slight moderation from a peak set during the summer.
Energy prices fell broadly. U.S. crude oil prices fell 2.5% and natural gas prices in the U.S. lost 2.8%. Russia's war against Ukraine continues hanging over the energy market and raising concerns about global supplies of oil and gas.
The latest round of corporate earnings is nearing a close and several companies are moving sharply following their results and forecasts. Sprouts Farmers Market surged 11.7% after raising its profit forecast for the year.
Outside of earnings, Bitcoin slumped 7.9% and other digital assets also fell sharply one day after the world's biggest crypto exchange, Binance, said it could potentially buy rival FTX Trading in what would amount to a bailout. Shares of publicly traded companies with heavy exposure to crypto trading were also down sharply. Coinbase fell 7.8% and Robinhood Markets fell 9.2%.