Stocks rise slightly as US midterm elections begin

Stocks rose slightly on Tuesday as investors eagerly awaited the results of much-anticipated midterm elections.

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The Dow Jones Industrial Average climbed 43 points, led by Caterpillar and Apple. The S&P 500 gained 0.2 percent as the industrials and tech sectors outperformed. The Nasdaq Composite outperformed, advancing 0.6 percent.

Democrats are expected to take control of the House away from Republicans while the GOP maintains a slim majority in the Senate. Stocks have historically done well under a divided government. Since 1928, the S&P 500 has averaged an annual return of 12 percent when Congress is split and Republicans control the White House.

However, the chances of Republicans retaining a majority in both chambers have increased recently. “We still think a split Congress is the most likely outcome but the probability of a ‘blue wave’ election in the House appears to have diminished,” analysts at Bank of America Merrill Lynch said.

Whichever way the elections shake out, they could lead Congress to pursue different policy agendas, including lower drug prices, banking regulation and defense spending.

The Democrats were leading with a 7 point advantage ahead of the vote, according to an NBC News/Wall Street Journal poll released Sunday. Data released on Monday showed that more than 35 million people have already cast their vote in early voting, indicating a record turnout for the 2018 midterms. In 2014, fewer than 20 million early votes were counted the day prior to the midterms.

“With absolutely nothing on the macro calendar today and the Fed not scheduled to deliver its rate decision until Thursday, investors have the next several hours to focus on the Midterm Elections,” said Jeremy Klein, chief market strategist at FBN Securities, in a note.

“Those bullish fear the GOP’s losing power in both chambers on Capitol Hill. While stocks would stumble a bit in the immediate aftermath of this unexpected outcome, the dip would present a fortuitous buying opportunity,” Klein noted.

Stocks have been volatile lately as worries about the elections, coupled with fears of rising rates and a potential slowdown in earnings growth, have put investors on edge. The Cboe Volatility Index, widely considered the best gauge of fear in the market, is up more than 60 percent since the start of the fourth quarter.

Ryan Browne
contributed to this report.

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