Stocks rallied Tuesday as investors awaited the outcome of the midterm elections in the U.S.
The S&P 500 (^GSPC) inched higher by 0.6%, while the Dow Jones Industrial Average (^DJI) ticked higher by 335 points, or roughly 1%. The technology-heavy Nasdaq Composite (^IXIC) edged higher by 0.5% after wavering during afternoon trading.
It was the third-straight day of gains for the major indexes ahead of another week of potential market-moving events: corporate earnings, midterm elections, and inflation data.
Investors are focused on Tuesday’s midterm elections that will determine control of the House and Senate for the remainder of President Joe Biden’s first term. Historically, Wall Street has preferred a split Congress or White House, with political gridlock that could impede major policy changes, an outcome that investors see as favorable for equities.
According to JPMorgan’s latest client survey, 39% of respondents were split on whether the U.S. midterm elections will be a positive catalyst for risk markets or non-event, while 21% expected negative implications. Regardless of the winner, some strategists argue that midterm outcomes have a “modest” influence in financial markets.
“The overall near-term implications of the 2022 U.S. Midterm Elections are quite modest for FX markets,” Meera Chandan, FX strategist at JPMorgan, wrote in a note to clients. “Markets should thus continue taking guidance more from the Fed’s monetary policy decisions than from any new large fiscal packages. One wildcard worth flagging is the risk of renewed uncertainty around the debt ceiling.”
Another closely watched item this week will be the Thursday release of October inflation data. Economists surveyed by Bloomberg expect headline CPI at an annual rate of 7.9%, down from 8.2% the month before. Even if the report shows prices starting to moderate, core CPI is far above the Fed’s comfort zone.
“The problem is going to be that in month over month terms, I think we’re still going to see a fairly strong core CPI,” Franklin Templeton Fixed Income CIO Sonal Desai told Yahoo Finance Live on Monday. “And I don’t think that a combination like that, together with the relatively strong jobs numbers we got on Friday, it’s not going to give the Fed much comfort in terms of changing the path which was outlined by Chairman Powell last week.”
Some Wall Street banks, including UBS, expect the U.S. to head into a “hard landing.” Indeed, Federal Reserve Chair Jerome Powell said last week that the path to achieve a “soft landing” has narrowed because the Fed hasn’t seen inflation coming down.
“The US economic expansion already looked precarious. After one of the most rapid recalibrations of monetary policy in several decades, the full effects remain to be seen,” Jonathan Pingle, managing director and chief U.S. Economist at UBS, wrote in the bank’s Global Economics & Markets Outlook 2023-2024 report.
“With meaningful imbalances remaining in the US economy as a result of the pandemic, we expect 2023 to bring an economic downturn, or correction. The good news, resolving the tensions we think sets the US economy up after 2023 for better years ahead,” he added.
Meanwhile, in a new note from Goldman Sachs, chief economist Jan Hatzius put the likelihood of a recession in the U.S. over the next 12 months at 35% amid the central bank’s aggressive tightening moves.
“We still see a very plausible non-recessionary four-step path from the high-inflation economy of the present to a low-inflation economy of the future,” Hatzius wrote in the note.
Corporate earnings reports also continued to trickle in on Tuesday. Among the highlights:
Planet Fitness (PLNT): The fitness gym posted third-quarter profit and revenue that topped expectations and raised its full year growth outlook as membership reached a record with joins back to pre-pandemic seasonal trends.
Norwegian Cruise Line Holdings Ltd. (NCLH): The cruise line operator reported a narrower-than-expected third-quarter loss on revenue that topped forecasts and as an adjusted earnings metric reached profitability for the first time since the start of the pandemic.
Lordstown Motors Corp. (RIDE): The electric vehicle maker posted a wider third-quarter loss than anticipated on Tuesday. However, shares gained momentum after iPhone maker Foxconn said it will invest as much as $170 million in the startup through the purchase of preferred stock and 18.3% of common shares, according to a statement late Monday.
Disney (DIS) reported an earnings miss after the bell, sending the stock lower in after-hours trading. The company said macroeconomic concerns and a global advertising slowdown weighed on its fiscal fourth quarter. AMC Entertainment Holdings (AMC), Affirm Holdings (AFRM), and Lucid Group, Inc. (LCID) were also set to report earnings after the bell Tuesday.
In corporate news, Kohl’s announced that CEO Michelle Gass is leaving following a shakeup in Kohl’s leadership to become CEO at Levi Strauss & Co. Shares of Lyft fell 25% after the ride sharing company said its revenue growth slowed and the number of people using the service stayed below pre-pandemic levels.
Elsewhere, cryptocurrencies traded lower as Binance, the world’s largest cryptocurrency firm, has reached a deal with Sam Bankman-Fried’s FTX to buy the crypto exchange for an undisclosed amount. The total crypto market capitalization has fallen by 57% from $2.18 trillion to $936 billion.
Overseas, Chinese stocks have gained momentum after last week’s rumor-driven wagers on reopening sparked a rally. According to the Wall Street Journal, Beijing is considering relaxing its zero-COVID policies but is moving forward cautiously and has no set timeline.
In bond markets, the yield on the 10-year Treasury note edged up to around 4.2% Tuesday. In oil markets, meanwhile, Brent crude, the international benchmark, weakened for a second day, falling to $97.71 a barrel. The U.S. dollar index slipped slightly after falling the most over the past three trading sessions since 2020.
Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv