Wall Street Set to Open Lower as Control of Congress Still Unclear

The major U.S. stock indexes are expected to open lower based on the pre-market trade as investors continued to monitor the results of the tightly contested midterm elections. The latest figures suggest the Democrats will retain control of the Senate, while the Republicans are expected to capture the House.

This would create gridlock in Washington, which would make it harder for the passage of drastic policy changes including tax reform and tighter regulations in the energy or financial sectors, for instance.

“There is a likelihood that we have a divided government… the general rule of thumb as far as markets are concerned is gridlock is good – fewer policy changes and less risk to individual sectors,” said Art Hogan, chief market strategist at B. Riley Financial.

Pre-Market Futures Activity Indicates Lower Cash Market Opening

At 13:52 GMT, the blue chip Dow Jones Industrial Average futures contract is trading 33025.00, down 150.00 or -0.45%. The benchmark S&P 500 Index futures contract is at 3818.25, down 17.00 or -0.44% and the tech-heavy NASDAQ Composite Index is trading 11032.25, down 62.00 or -0.56%.

Cyclicals Will Outperform Defensives Regardless of the Midterm Election Results, Strategist Says

22 V Research’s Dennis DeBusschere is not too concerned about the outcome of the election because he believes cyclical shares will outperform defensives anyway, even if the strong Republican win investors were anticipating is not realized.

“Ultimately this backdrop favors Cyclicals over Defensives no matter who wins. Defensive valuations are exceptionally high relative to Cyclicals, Defensives cash return yields are narrowing relative to risk-free rates, and earnings sentiment for Defensive groups is deteriorating further while Cyclicals are stabilizing,” DeBusschere wrote in a Wednesday note.

Weak Performances Making the Headlines ahead of the Opening

Ahead of today’s opening, shares of Roblox dropped more than 16% in premarket trading after reporting a bigger loss than expected before the bell.

Walt Disney is down 7.4% in the premarket after missing top and bottom line estimates for its latest quarter.

Affirm Holdings plunged 12.2% in premarket trading after the buy-now-pay-later firm reported a wider-than-expected quarterly loss.

Upstart Holdings plummeted 23.8% in premarket action after the AI-driven lending platform issued a much weaker-than-expected revenue forecast for the current quarter, citing challenging economic conditions.

Daily Forecast

The major indexes are likely to remain under pressure as long as there is uncertainty over the outcome of the elections. Once there is clarity, we’ll likely see a quick response then traders will shift their focus quickly to Thursday’s U.S. consumer price index report.

Generally speaking, look for stocks to rally if the Republicans win the House and the Senate. Even a confirmed gridlock could provide support, but I don’t think there will be a major sell-off if the Democrats retain control of both chambers of Congress.

The reason we could see a limited response to the election results is because they will have long-term implications, while investors are living in a short-term world, governed by Federal Reserve monetary policy, and the size and duration of its interest rate hike.

I expect Thursday’s inflation report to have a bigger impact on stock prices because it will tell us whether the Fed should ease its aggressive rate hike pattern or maintain it. This decision will go a lot further in determining the direction of the market than whether the Democrats or Republicans gain control in Washington.