Stocks rally for a third day ahead of midterm election results, Dow closes 300 points higher

Stocks rally for a third day ahead of midterm election results, Dow closes 300 points higher

Stocks rose Tuesday as investors awaited the results of the US midterm elections, which could affect future levels of government spending and regulation.

The Dow Jones Industrial Average gained 333.83 points, or 1.02%, to 33,160.83. The S&P 500 was up 0.56% to 3,828.11. The Nasdaq Composite advanced 0.49% to 10,616.20. All three indexes rallied for a third straight day.

Market participants are expecting Republicans to take back the House of Representatives and possibly win the Senate as well when 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 gridlock, that will probably be the best thing that could happen for the market. The markets usually do very well when that happens,” said The Wealth Alliance’s Seth Cohan.

Overall, history shows markets tend to gain into the end of the year and up to 12 months following midterm elections as investors are relieved to get some clarity on future policy. One wild card would be if multiple races that could determine control of Congress are too close to call, an outcome that could weigh on markets Wednesday.

“The financial market reaction to a Republican win 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 in a Monday note.

“A surprise Democratic win in the House and Senate would likely weigh on equities, as market participants might expect additional corporate tax increases,” Hatzius added.

Stocks came off their highs Tuesday afternoon, with the Nasdaq down 0.9% at one point, amid a broader sell-off in cryptocurrencies. Crypto prices tumbled Tuesday after the two biggest crypto exchanges in the world, Binance and FTX, came to a merger agreement to fix the latest “liquidity crunch.” Bitcoin hit a low of 17,300.80, or its lowest level since November 2020.

“Crypto is a good bellwether for investor risk sentiment more broadly,” said Horizon Investments’ Zachary Hill.

SolarEdge Technologies was the leading outperformer in the broader market index, up 19% after reporting record revenue in its most recent quarter. Elsewhere, shares of Kohl’s jumped 7% after the department store chain announced the departure of its CEO next month.

Meanwhile, shares of Lyft dropped nearly 23% on disappointing quarterly results. Take-Two Interactive and Tripadvisor slumped about 13.7% and 17.3%, respectively, after reporting earnings.

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