The S&P 500 (^GSPC) lost more than 2%, while the Dow Jones Industrial Average (^ DJI) fell by nearly 650 points, or about 2%. The technology-intensive Nasdaq composite (^IXIC) pulled down nearly 2.5%, or 260 points.
Investor optimism during the three-day rally in stocks was built on expectations that Republicans would gain ground and create a stalemate in Washington. But the Republican red wave did not materialize in the American Midterms. Democrats managed to flip a crucial Senate seat, with John Fetterman beating Mehmet Oz in the race in Pennsylvania. As of Wednesday night, control of the House and Senate hung in the balance.
Georgia’s U.S. Senate race, meanwhile, is heading to a runoff, with neither leading candidate on track to win a majority of votes.
The year after midterm elections tends to see the highest stock returns, according to LPL Financial.
“Dating back to 1951, a Democratic president with a Republican or split Congress, the two most likely cases in this election, has seen an average S&P 500 index return of over 17% versus an overall average of just a little more than 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 great movement in the markets.
“We expect the impact of the election to tip the market positive, in part because we will have it behind us,” Gilbert added. “As far as markets are concerned, the policy impact will likely be small and market participants will continue to focus more on central bank policy and inflation.”
At this 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 polled by Bloomberg expect headline CPI at an annual rate of 7.9%, down from 8.2% the previous month. Even though the report shows that prices are beginning to moderate, core CPI remains well above the Fed’s comfort zone.
“We’re still well above that 2% target,” said Rebecca Felton, senior market strategist at RiverFront Investment Group. Yahoo Finance Live tuesday. “So we don’t think the Fed is going to ease anytime soon in the short term. And so rates will stay higher for longer and inflationary pressures will clearly stay higher for longer as well.
In corporate news this Wednesday, Meta Platforms (META) said the social media giant would remove more than 11,000 jobs, or about 13% of staff, as the company restructures to deal with the collapse of the digital advertising market. Disney (SAY) job lower than expected fourth-quarter results on Tuesday, as the streaming business led to larger losses that offset strong performance at theme parks. disney Stock lost more than 13%.
Elsewhere in the markets, the largest US homebuilder DR Horton Inc. (DHI) reported fourth-quarter results that showed buyers had canceled nearly a third of transactions, the latest red flag for the housing market. Tesla stock also fell on Wednesday following a record showing CEO Elon Musk sold 19.5 million shares Nov. 4-8. The sale came after he bought Twitter for $44 billion.
Cryptocurrencies were under pressure as investors digested news that cryptocurrency exchange Binance said it would drop an initial offer to acquire rival FTX after a review of the company’s structure and books. bitcoin fell more than 10% to trade at its lowest level in two years.
Cryptocurrency-related stocks also took a hit. Cryptocurrency exchange competitor Coinbase (PIECE OF MONEY) shares fell 5.3%. Robinhood Markets (HOOD) fell more than 7%. According to a Filing with the SEC in May, Sam Bankman-Fried, the founder of FTX, purchased 7.6% of the company’s Class A shares. In an interview reported by the The Wall Street Journal, he said his company was open to partnerships with Robinhood.
In bond markets, the yield on the 10-year Treasury bill rose slightly to around 4.1% on Wednesday. And in oil markets, Brent crude, the international benchmark, slipped 1.1% to $94.35 a barrel, extending losses for the third straight day, while the dollar also erased losses.
Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv