Stocks Jump  As Investors Anticipate Midterm Election Results

2:32 pm Tuesday, November 08th, 2022

Today’s trade was distinctly positive as market participants turn their attention to the midterm elections. While some races may be too close to call tonight, the stock market’s prevailing expectation is that the results will ultimately feature the Republicans winning control of one, if not both, houses of Congress and create a legislative gridlock environment that will make it near impossible to approve new tax hikes, large stimulus plans, and stepped-up regulatory pressure.

The latter assumption has fueled some bargain-hunting along with reports about how the stock market typically performs well in the 12-month period following a midterm election (average gain of 14.7% since 1950, according to LPL Research).

Additional support factors include the dollar continuing to weaken and Treasury yields pulling back from overnight highs. The U.S. Dollar Index is down 0.6% to 109.47. The 10-yr note yield, which tested 4.24% overnight, is down seven basis points to 4.14% and the 2-yr note yield is down three basis points to 4.69%.

The major indices extended their gains and hit session highs as both Treasury yields and the dollar backtracked. The S&P 500 currently sits just north of 3,800.

Today’s rally is fairly broad in nature. Advancers outpace decliners by a roughly 3-to-1 margin at the NYSE and a 5-to-3 margin at the Nasdaq.

Most of the 11 S&P 500 sectors trade in positive territory. Materials (+2.5%) enjoys a first place spot thanks to earnings-driven gains in DuPont (DD) and Mosaic (MOS). Meanwhile, energy (flat) is buried in last place amidst falling oil prices. WTI crude oil futures are down 1.3% to $90.55/bbl.

Semiconductor stocks are a bright spot in the market. The PHLX Semiconductor Index is up 2.8%. NVIDIA (NVDA) is a winning standout for the group after The Wall Street Journal reported that it has come up with an alternative chip for its Chinese customers that does not violate U.S. export controls.

Economic data today was limited to the October NFIB Small Business Optimism Index, which came in at 91.3 after the prior reading of 92.1.