Skip to comments.S&P 500 and Dow surge [+545!] in best rally after midterm elections since 1982
Posted on 11/07/2018 2:20:25 PM PST by Red Badger
U.S. stocks closed broadly higher on Wednesday after the midterm election results came in about as expected, lifting a cloud of uncertainty that was weighing on the market.
The major averages hit their session highs after President Donald Trump indicated he is willing to work with Democrats on policy initiatives that would help the economy keep growing.
The Dow Jones Industrial Average closed up 545 points, led by gains in UnitedHealth and Apple. The S&P 500 gained 2.1 percent as the health care, tech and consumer discretionary sectors each rallied more than 2.8 percent. The Nasdaq Composite rose 2.6 percent.
Wednesday's post-midterms rally was larger than the average gain that follows the contests. Goldman Sachs noted the S&P 500 has averaged a gain of 0.7 percent from the day before the elections to the day after midterms. Wednesday marked the biggest post-midterms gain for both the Dow and S&P 500 since the day after the 1982 contests, when the indexes surged 4.3 percent and 3.9 percent, respectively.
"Hopefully we can all work together next year to continue delivering for the American people, including on economic growth, infrastructure, trade, lowering the cost of prescription drugs," Trump said in a news conference. "The Democrats will come to us with a plan for infrastructure, a plan for healthcare, a plan for whatever they're looking at and we'll negotiate."
Democrats won control of the House of Representatives while Republicans retained their hold on the Senate, as the midterm's outcome split Congress.
"We believe (out of consensus) that a split Congress is the best outcome for US and global equity markets," said Marko Kolanovic, a widely followed quantitative analyst at J.P. Morgan, in a note. "As the President cannot count on Congress or the Fed for more easing, he will need to do what is in his power to keep the economy rolling drop the damaging trade war and turn it into a winning deal."
Democrats will win the House. Here's how it could impact Trump's economy Democrats will win the House. Here's how it could impact Trump's economy 18 Hours Ago | 01:53
Investors expect Trump's business-friendly policies to continue, while some expressed optimism about Congress providing a larger check on Trump's more disruptive market actions. Historically, equity markets see strong returns when Congress is divided.
Stocks rallied across multiple sectors, as shares of Caterpillar, Goldman Sachs, Amazon and Alphabet all rose. Caterpillar is seen getting a boost from continued economic growth.
There's also some optimism the president will work with Democrats on an infrastructure plan. Vulcan Materials and United Rentals, jumped 4.5 percent and 0.9 percent, respectively.
Tech shares rose, as a divided Congress could also keep Trump from seriously going after giants like Amazon for being too big and influential on the economy.
"The pollsters were correct. The markets went into this, given [Tuesday's] close, expecting this outcome," said Quincy Krosby, chief market strategist at Prudential Financial. "Now the market is trying to figure out which sectors will do better."
But trade remains one area where Trump still has most control as tariffs are on foreign goods are implemented through the executive branch.
"A further ratcheting up of measures against China in January is still a risk," strategists at MRB Partners said in a note. "Such an outcome would also add to upward pressure on U.S. inflation, while adding deflationary pressure to global goods prices."
Meanwhile, the Federal Reserve is kicking off a two-day meeting on Wednesday. Worries around the pace of interest rate hikes last month saw global markets hit with sharp bouts of volatility. Markets have been pricing in a higher probability of the Fed raising rates again in December, with further tightening seen through 2019.
"I think they'll just say the data is good and they're still on the path toward normalization," said Anwiti Bahuguna, senior portfolio manager at Columbia Threadneedle Investments. "They have the luxury of being data dependent because inflation and wage growth show no signs of the economy overheating." 'This is your entry point'
Equities in the U.S. closed higher on Tuesday as the elections began earlier in the day.
Defense stocks are also among the expected winners from a divided Congress as it is one of the areas Democrats and Trump may find common ground. Democrats agreed to a Defense Department budget increase for fiscal year 2019.
Art Hogan, chief market strategist at B. Riley FBR, said financials could lose out as the Democrats take control of the House. "In terms of the financials, they might need a bit more deregulation and that is harder to promote under a split Congress," he said. Record number of women elected to the House Record number of women elected to the House 48 Mins Ago | 01:40
Overall, stocks typically do well when Congress is split and the White House is under Republican control. In those instances, the S&P 500 averages an annual return of 12 percent, according to Bank of America Merrill Lynch. "The best case scenario from here, in our view, might be gridlock: do nothing, and undo nothing," wrote Bank of America Merrill Lynch analysts and economists in a report leading up to the election.
These results could also lead to more investigations into Trump and therefore more stock market volatility.
But regardless of how the elections shake out, this is the best buying opportunity for investors before year-end, said Phil Blancato, CEO of Ladenburg Thalmann Asset Management.
"This is your entry point," he said, adding that positive seasonal factors, including strong holiday sales, should boost markets higher before the end of 2018. "You might get some volatility in the next couple of days as the market absorbs the result, but you buy those dips. ... Everything is telling you this is the time to buy" following the correction in October.
CNBC's Ryan Browne , Tom Franck and Patti Domm contributed to this report.
Wall Street loves a divided government in Washington. It’s the scenario most likely to result in fiscal responsibility and minimal meddling in the economy.
It’s the investors reacting to gridlock. They love it when government can’t enact bad legislation. 8>)
That’s part of it. Another part is that the labor market is very tight right now and larger salary and wage packages mean less money to distribute to stock holders. Wall Street also loves cheap labor and immigration.
Gridlock is good.................unless you are stuck in traffic!.................
If less money is distributed to stockholders then shouldn’t the stock market DECLINE?
Gridlock is good.
They say markets like gridlock and all that. That’s the story line. If so then markets don’t like additional tax cuts and other Trump pro-growth policies?
I think it’s more complicated. Markets can’t like Nancy Pelosi as Speaker.
But they expect split govenment will not build a wall. More immigrants = lower wages = more profit. Your scenario would be from a big conservative Republican (not chamber of commerce Republican) win.
You can bet that Wall Street and liberal CEOS also purposely drove down the market in the 30 days before the election.
Wednesday marked the biggest post-midterms gain for both the Dow and S&P 500 since the day after the 1982 contests, when the indexes surged 4.3 percent and 3.9 percent, respectively.
And then the market declined for the next six months.
But it is different now. At the end of 1982 we were recovering from the Volcker recession.
The markets mainly soared today because the uncertainty is over. I did ok today (I day trade). I figured it would go up a lot today and it did. December should be interesting.
“Tech shares rose” Of course: their Majority Leader is back!
Now donors for both Parties get their goodies. Twice as much for the crooked, half as much for Americans.
Trump will fight ‘em and have some success, but less than he would have.
"McDonald's announced a 90% reduction in their cash dividend today -- resulting in a massive rise in the company's stock price!" -- said nobody, ever.
Divided government is fiscally responsible? Lol you must be kidding. The markets are excited because in divided government, the dems have to be bribed with new spending in order to get our own agenda items considered.
It means there is about to be an orgy of federal spending.
Exactly... you nailed it.
"Fiscal responsibility" with Maxine Waters chairing the Banking Committee?
"Fiscal responsibility" with the worst of the TERMINALLY INSANE DEMS heading all of the other House committees?
Investigation after investigation of the president, every member of his family, back to his great grandfather, one into Kavanaugh, and manhy into every single Cabinet member and THAT just for starters; not to mention the IMPEACHMENT CRUD and the economy AND the markets are going to roil worse than ever!
No it isn’t; not when Trump is the president and he is trying to fix the mess all of his predecessors left him.
Yes. Many investors, in spite of their individual opinions against more manufacturing on U.S. soil and their paranoia about the population expanding, must try to make money. So technically inclined Americans win, and investors invest more (technically inclined Americans being those who would do well with more manufacturing).
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