Stocks rose on Tuesday as investors awaited the results of the U.S. midterm elections, which could affect future levels of government spending and regulation.
The Dow Jones Industrial Average gained 314 points, or 1%, after gaining more than 500 points earlier in the day. The S&P 500 rose 0.4%. The Nasdaq Composite advanced 0.3%. All three indexes are on pace for their third consecutive positive day.
Market participants expect Republicans to take back the House and possibly the Senate as well when the results start rolling in Tuesday night. Investors tend to like the notion of gridlock in Washington with a divided Congress and president because it will limit government spending, new taxes and regulations.
“If we have a lockout, it’s probably the best thing that could happen to the market. Markets tend to do very well when that happens,” said Seth Cohan of The Wealth Alliance.
In general, history shows that markets tend to gain at the end of the year and up to 12 months after midterm elections, as investors are relieved to get some clarity on future policy. A wild card would be if several races that could determine control of Congress were too close to call, an outcome that could weigh on markets Wednesday.
“Financial market reaction to a Republican victory should be muted, as the House outcome is already widely expected, and the Senate outcome makes less of a difference to policy outcomes if Republicans control the House” , Goldman Sachs’ Jan Hatzius wrote on Monday. note
“A surprise Democratic win in the House and Senate will likely weigh on stocks, as market participants could expect additional corporate tax increases,” Hatzius added.
Stocks were off their highs on Tuesday afternoon, with the Nasdaq down 0.9% at one point, amid a broader sell-off in cryptocurrencies. Bitcoin fell 15% on Tuesday after the world’s two largest crypto exchanges, Binance and FTX, reached a merger agreement to fix the latest “liquidity crisis”.
“If you look at the price of Bitcoin and other related crypto assets, there’s strong selling pressure in those, and I think in the short term that’s bleeding into stock market sentiment today,” said Zachary Hill of Horizon Investments.
“Crypto is a good indicator for investor risk sentiment more broadly,” Hill added.
SolarEdge Technologies was the best performer in the broader market index, rising more than 18% after reporting record revenue in its most recent quarter. Elsewhere, Kohl’s shares rose more than 10% after the department store chain announced the departure of its chief executive next month.
Meanwhile, Lyft shares fell 21% on disappointing quarterly results. Take-Two Interactive and Tripadvisor fell 12% and 17%, respectively, after reporting earnings.