Stocks Slip as Midterm Results Remain Unclear

Joe Rennison and

• Nov. 9, 2022Updated 10:21 a.m. ET

Stocks dropped on Wednesday morning, after expectations of a “red wave,” in which Republicans would comprehensively win control the House and potentially also gain a majority in the Senate, failed to materialize in the midterm elections.

The S&P 500 fell as much as 1 percent on Wednesday morning before retracing to trade 0.4 percent lower, as overall control of the House and Senate remained uncertain.

Votes are still being counted and it may take days to get a clear picture of the result. According to the most recent projections, Republicans are favored to win control of the House while the Senate is leaning toward the Democrats.

After nudging higher on Tuesday evening, coinciding with early Republican victories, markets grew more cautious as the night went on.

“The result represents a disappointing outcome for Republicans, who expected to garner a large majority of seats in the House but now must manage the flow of legislation with less room for error,” said Thomas McLoughlin, head of fixed income and municipal securities at UBS Global Wealth Management.

Some investors cautioned against reading too much into the early stock moves, with Republicans still expected to take control of the House. “I think the immediate sell-off can probably be attributed more to reflexive selling of the news rather than something worse,” said Brad McMillan, chief investment officer at Commonwealth Financial Network.

Investors and analysts have said that divided government — where Democrats lose control of at least one chamber of Congress — could be positive for the stock market because it would probably limit any major legislation that could affect corporate profitability and financial markets.

“You just have politicians stop doing stuff and generally the market likes that,” said James Masserio, the co-head of equities in the Americas for Société Générale.

The election is not the only thing on investors’ minds. Many have said that against a backdrop of high inflation, rising interest rates and tense geopolitics, the midterms have receded in importance.

On Tuesday, a stock rally came unstuck amid turmoil in crypto markets, one of the litany of factors influencing markets at the moment. The price of Bitcoin fell a further 6 percent on Wednesday morning, to around $17,500, down over 15 percent since the start of the week, with traders saying this also weighed on the broader stock market.

The next big event for investors comes on Thursday, when new data about inflation in the United States will steer expectations over how aggressively the Federal Reserve could be in raising interest rates, which increases costs for companies and dampens economic growth.

“There are these major forces that kind of drown out the election,” Mr. Masserio said.