NASDAQ Composite Treading Water Ahead of US Congressional Elections, CPI Data

The major U.S. stock indexes are trading mixed at the mid-session on Monday with many of the major players taking to the sidelines ahead of Tuesday’s U.S. congressional elections and Thursday’s major consumer inflation report.

At 17:00 GMT, the blue chip Dow Jones Industrial Average is trading 32562.61, up 159.39 or +0.49%. The benchmark S&P 500 Index is at 3771.75, up 1.20 or +0.03% and the tech-weighted NASDAQ Composite is trading 10441.84, down 33.41 or -0.32%.

GOP Victory Will Create Split Government

According to reports, the Republicans are picking up momentum in polls and analysts see a split government, with the GOP winning the House of Representatives and possibly the Senate, as the likely outcome possibly hindering Democratic President Joe Biden’s agenda, which includes possible across the board tax hikes and a windfall tax on energy companies.

“Under this election outcome scenario, we doubt we would make any major changes to our forecasts for GDP growth, inflation or the federal funds rate as a result of the election,” Wells Fargo economists said.

“Instead, status quo and political gridlock that stymies major policy changes, an outcome that investors see as favorable for equities.

CPI Data on Tap

After Friday’s unexpected rise in the U.S. unemployment rate, traders are bracing for a possible surprise in Thursday’s consumer price index (CPI) report.

Economists are once again expecting inflation to come in at extremely high levels on a historical basis.

The consensus CPI report forecast calls for inflation rising 0.7% for October, according to FactSet. The so-called core rate of inflation – which excludes volatile food and energy prices – is expected to rise 0.5%. That would follow a 0.4% overall CPI reading in September and a 0.6% rise in core CPI.

Factset also said, on an annualized basis, the consensus CPI forecast is for an 8.0% year-over-year increase, and for core inflation to rise at a 6.5% rate. That would represent only a modest set of improvements from the September report, where the annual inflation rate was 8.2% overall and 6.6% for core.

Stocks and Sectors

In stock related news, shares of Meta Platforms Inc climbed 5.4% following a report that the company was planning to begin large-scale layoffs this week.

Weighing on the tech-heavy NASDAQ Composite, Apple Inc fell 1.2% after the company said it expected lower shipments of premium iPhone 14 models than previously anticipated.

Short-Term Outlook

We’re looking at rangebound trading until the U.S. election results start to come out late Tuesday night. Typically, a Republican victory is good for stocks. But in this high inflation, high interest rate environment, gains are likely to be short-lived. Especially since the CPI report will be right around the corner on Thursday. Keep in mind that the election is not expected to influence the Federal Reserve. It is politically neutral.