The Dow Jones industrials like a divided government - so far. The blue-chip index notched a more than 500-point gain after Democrats took back the House in last night’s midterms and Republicans strengthened their hold on the Senate.
It’s the Dow’s sixth up day in seven sessions, gaining 545 points, or 2.1 percent, to hit 26,180 by the end of trading. Microsoft, UnitedHealth, Pfizer and Caterpillar all spearheaded the rise among the Dow 30 blue chips. Proctor & Gamble was the only company in the red.
The Standard & Poor’s 500-stock and the Nasdaq composite followed with increases of 2.1 percent and 2.6 percent respectively.
Oil prices dropped again, in their sixth down session in a row.
“With the conclusion of this year’s midterm elections, the cloud of uncertainty has been lifted, allowing stocks to resume their recovery from the October sell-off,” said Sam Stovall, chief of U.S. equity strategy at CFRA.
Tuesday’s split decision of Democratic House and Republican Senate puts the kibosh on any tax cut that President Donald Trump was proposing for the second half of his term.
Goldman Sachs on Wednesday said it does not expect any tax legislation over the next two years.
“Having gotten tax cuts, spending increases and deregulation in the past two years, the market is glad to take two years of stasis now,” said Ed Keon, chief investment strategist at QMA.
Looking ahead, the one place Trump and Democrats may find common ground is infrastructure. Both sides have shown willingness to pass legislation on that, as it reaches into every corner of the country and gives both parties something to brag about.
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Construction, materials and industrial stocks, including Honeywell and United Technologies in addition to Caterpillar, could benefit from a big infrastructure program that includes ports, airports, roads and bridges. That would be good for growth, but not good for the federal deficit as it would require the government to borrow more money. Investors also like Democrats as a check on Trump trade policies.
Kristina Hooper, chief global market strategist at Invesco, said Wednesday’s rebound was baked into the market, including with the drop in technology stocks leading up to the election.
“Over the last month, the stock market began to price in this political scenario, which is one of the reasons we saw stock losses and higher volatility,” Hooper said. “There is the potential for tech to come under greater regulation with the new composition of Congress. That was also priced in for the last month, so I’m not surprised to see tech up today in keeping with the adage of selling on the rumor, buying on the news.”
Hooper said the gridlock in Congress is affecting health-care companies “because the Affordable Care Act will be protected with a Democratic majority in the House and because of the success of Medicaid expansion ballot initiatives. That’s particularly good for hospitals and insurers.”
Hooper also stated that companies such as Caterpillar are likely to benefit given the chance that Trump and Pelosi may agree on a big infrastructure spending bill.
Jeffrey Schulze, investment strategist for ClearBridge Investments, a New York-based affiliate of Legg Mason, said the S&P 500 should continue to march higher for the rest of 2018 and into 2019.
But, he said in a note Wednesday morning, “the change in congressional leadership could lead to increased volatility for the market broadly, particularly as it relates to government shutdowns and debt ceiling raises.”