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.
Your best stocks both pay dividends and increase in value.
It’ll be far worse than it has EVER been and since you are incapable of seeing/understanding THAT, no amount of my explaining it to you will help to wake you up...so I shan’t bother to.
C’mon, turn that frown upside down. You are being way too gloomy. As far as investments go plan on seeing new records set regularly. As far as Democrats go plan on seeing insanity on parade for 2 years.
You've NO idea what drives the markets now and has since the CRASH OF '87!
And as far as what shall be done & said by the RATS, fro here on out...it SHALL be horrible!
You are asking me to grow up??? I was around for that crash. I’m most likely older than you. I see absolutely no reason for a market crash for the next 12-24 months minimum.
I rather doubt that you are older than I am.
Re the CRASH OF '87...were YOU on the floor of an EXCHANGE?
Do you know what triggered it? Hint, hint...I do.
Markets go up and markets go down; however, when machines/computer programs replaced the human element, it has detracted from rational "thinking"! It's why there are so many IRRATIONAL, WILD swings now.
And I didn't mention a "crash" being in our immediate future, though one in October 2020 wouldn't surprise me.
I’m 60, and I said “around”, not “on the floor of an exchange”. And when the Dow is at 26,000 400 or 500 points is no big deal.
And no, I am not in the least interested in why you think the market crashed.
No, you didn't claim to be on any Exchange floor; I was asking you several different queries, by which to gauge your background/knowledge.
ROTFLMSO...oh puuuulllllllleeeeeeeeeeeeze, do try to tell me something relevant! Of course the highly inflated DOW numbers and the seemingly ( to the uneducated ) daily losses or up ticks don't matter in comparison to earlier numbers, which were greater because of the percentage the ups and downs were to the much smaller DOW figures.
Am NOT going to explain ( I do keep my real life to myself and off threads ); however, you just ran into a wall and should just stop now, before you embarrass yourself further.
That’s gotta put a smile on your face. Thanks for the ping!
Yeah, you tell yourself whatever it takes to make you feel better, pops.
What bankers and investors love most about a Congress divided by different majorities in each house is for at least two years they can relax about facing any new big changes coming at them or the business community in general. For at least two years their biggest concerns will not be coming from Washington D.C., where it will mostly be a status quo.
Ferengi Rules of Acquisition:
Gridlock is good for business................
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