NEW YORK (AP) — Election Day brought a bullish rise, with stocks climbing Tuesday for a third straight day on WallStreet.
The S&P 500 rose 21.31, or 0.6%, to 3,828.11, though it flipped between an even bigger gain and a modest loss to get there. The Dow Jones Industrial Average climbed 333.83 points, or 1%, to 33,160.83, and the Nasdaq composite gained 51.68, or 0.5%, to 10,616.20.
With Americans heading to the polls across the country amid high inflation and worries about a possible recession, analysts say investors appear to be making bets for Republicans to gain control of at least one house of Congress. That combined with a Democratic White House could lead to little getting done in Washington. And markets tend to abhor uncertainty.
Stocks have already rallied in anticipation of Republicans winning control of at least the House of Representatives, ensuing reaction in financial markets could be modest, according to economists at Goldman Sachs. But a surprise win by Democrats could upset the market if it leads investors to expect higher corporate taxes and other policy changes.
Economists are gaming out what could happen in a recession as the most the most important milestone for markets this week than Election Day may be Thursday’s upcoming report on inflation.
That data will likely carry much more influence over what the Fed does with rates. “It will continue to be front and center until we are out of the woods from this high inflationary environment,” said Bill Merz, head of capital market research at U.S. Bank Wealth Management. “The Fed doesn’t even know how far they need to go, certainly nobody else does.”
The problem for markets is that high rates drag down prices for stocks and other investments while raising the risk of a recession if rates go too high. The Fed has already hiked its key overnight rate to a range of 3.75% to 4%, up from virtually zero in March, and more investors are expecting it to top 5% next year.
A softer reading than expected on Thursday could give the Fed leeway to loosen up a bit after raising interest rates at a furious pace this year. Economists expect it to show a continued, slight moderation from a peak set during the summer.
But a worse-than-expected reading could have the opposite effect.
“The point though, is how long does it take to get back to a more normal inflation rate and the longer it takes, the more restrictive the Fed is compelled to be,” Merz said.
Stocks are also moving on corporate profit reports, as earnings season enters its tail end. Take-Two Interactive sank 13.7% after reporting weaker results for the latest quarter than expected.
Shares of companies entwined with the cryptocurrency economy also fell sharply, with Coinbase Global losing 10.8% and Robinhood Markets falling 19%.
They dropped with crypto prices after the world’s biggest crypto exchange by daily volume, Binance, said it intends to buy one of its bigger rivals, FTX.
It’s the latest crisis of confidence to slam the crypto industry, as prices have tumbled.
Bitcoin at one point sank below $17,500 before pulling back to $18,267, down 12.2% from a day earlier, according to CoinDesk.