Stock futures fall as election results waver

U.S. stocks fell sharply on Wednesday after three days of gains, as investors mulled a mixed verdict from midterm election results and long-awaited inflation data loomed large.

The S&P 500 (^GSPC) fell more than 2%, while the Dow Jones Industrial Average (^DJI) fell nearly 650 points, or about 2%. The tech-heavy Nasdaq Composite ( ^IXIC ) fell nearly 2.5%, or 260 points.

Investor optimism during the three-day rally in stocks was based on expectations that Republicans would gain ground and create gridlock in Washington. But the Republican red wave failed to materialize in the US midterm elections. Democrats managed to win a crucial Senate seat, with John Fetterman beating Mehmet Oz in the Pennsylvania race. As of late Wednesday, control of both the House and Senate remains in the balance.

Georgia’s U.S. Senate race, meanwhile, is headed for a runoff, with none of the major candidates on track to win a majority of the popular vote.

The year after midterm elections tends to see the highest returns on equity, according to LPL Financial.

“Going back to 1951, a Democratic president with a Republican or divided Congress, the two most likely cases this election, has seen an average S&P 500 return of more than 17% versus a general average of just over 12%,” Barry Gilbert . LPL Financial’s asset allocation strategist wrote in a note.

The final outcome of the interim results may not be known for days or weeks, but Wall Street professionals do not expect much movement in the markets.

“We expect the impact of the election to tilt the market positively, in part because we will have it behind us,” Gilbert added. “In terms of markets, the impact of policy is likely to be small and market participants will continue to focus more on central bank policy and inflation.”

At this point, investors will turn their attention to Thursday morning’s inflation report as the Bureau of Labor Statistics releases the Consumer Price Index (CPI) for October. Economists polled by Bloomberg expected the core CPI to be at an annual rate of 7.9%, up from 8.2% last month. Even though the report shows that prices are starting to moderate, the core CPI remains well above the Fed’s comfort zone.

“We’re still well above that 2% target,” Rebecca Felton, senior market strategist at RiverFront Investment Group, said on Yahoo Finance Live on Tuesday. “So we don’t think the Fed will be easing at any point in the near future. And so interest rates are going to stay higher for longer and inflationary pressures are clearly likely to stay higher for longer as well.”

In corporate news Wednesday, Meta Platforms ( META ) said the social media giant will cut more than 11,000 jobs, or about 13% of its workforce, as the company restructures to deal with a declining digital ad market. Disney ( DIS ) reported lower-than-expected fourth-quarter earnings on Tuesday, with its streaming business resulting in wider losses offsetting strong performance at its theme parks. Disney stock fell more than 13%.

In other markets, the largest US homebuilder DR Horton Inc. ( DHI ) reported fourth-quarter earnings that showed buyers canceled nearly a third of deals, the latest red flag for the housing market. Tesla stock also fell on Wednesday after a filing showed CEO Elon Musk sold 19.5 million shares between Nov. 4 and Nov. 8. The sale came after it bought Twitter for $44 billion.

On the earnings front, Rivian (RIVN), Wynn Resorts (WYNN) and Bumble (BMBL) is among the companies to report earnings on Wednesday.

Cryptocurrencies came under pressure as investors digested news that crypto exchange Binance said it would pull out of an initial bid to acquire rival FTX following a review of the company’s structure and books. Bitcoin fell more than 10% to trade at its lowest level in two years.

Stocks linked to cryptocurrencies also took a hit. Shares of rival cryptocurrency exchange Coinbase ( COIN ) fell 5.3%. Robinhood Markets ( HOOD ) fell more than 7%. According to an SEC filing in May, Sam Bankman-Fried, the founder of FTX, bought 7.6% of the company’s Class A shares. In an interview reported by the Wall Street Journal, he said his company was open to partnerships with Robinhood.

In bond markets, the yield on the 10-year note was around 4.1% on Wednesday. And in oil markets, Brent crude, the international benchmark, fell 1.1% to $94.35 a barrel, extending losses for a third straight day, while the dollar also erased losses.

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Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv

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