U.S. stocks rose for a third day as investors awaited the results of the midterm elections and monitored the crypto token selloff that wiped more than 10 percent off Bitcoin’s price. The dollar fell with Treasury yields.
The S&P 500 closed higher, after wiping out gains that had topped 1 percent. Sentiment took a hit after Bitcoin tumbled as the owner of the largest crypto exchange swooped in to buy a smaller rival that ran into cash-strapped. The yield on two-year Treasury bonds, more sensitive to Federal Reserve policy changes, lost 6 basis points, while a gauge of the dollar fell for a third day.
In after-market trading, Walt Disney Co. shares fell after the company reported sales and profit fell below Wall Street expectations.
Stocks gained in the regular session as investors eyed a possible stall in mid-term results. Still, no final result may be known for days or even weeks if the races are as close as the polls suggest and the results are disputed by the losers.
In an unexpected development, billionaire Changpeng “CZ” Zhao cemented his position at the top of the crypto world on Tuesday with a move to take over FTX.com. Emergency buying terms were tight, helping cryptocurrency prices fall after a brief rally.
“Bitcoin/crypto mini crash destabilized the stock market and caused a sharp drop,” said Jay Hatfield of Infrastructure Capital. “Investors don’t like to see disruptions or mini-crashes in any risk asset.
A strong performance record following the mid-term results has helped fuel optimism about the outlook for equity markets. While polls suggest that Republicans could make gains, thus putting a check on Democratic policies, there are multiple scenarios. The best outcome for Treasuries could be a Republican control of both the House and Senate, while the dollar could find support if Democrats hold both chambers.
For many, the biggest headwind for markets is Fed tightening with Thursday’s consumer price index data, the next event risk comes on the heels of core consumer prices rising more than anticipated at a maximum of 40 years in September. Even if prices start to moderate, the CPI is well above the Fed’s comfort zone.
Going forward, there may be a silver lining to the doldrums for policymakers, according to Art Hogan, chief market strategist at B. Riley Wealth.
“A divided government, particularly before a presidential election, will most likely create an impasse in which too little gets done,” Hogan wrote. “It’s probably a good thing for the Fed because various stimuli haven’t made their job any easier.”
- “As more and more polls or even some slight acknowledgments of places where Republicans are likely to hold at least one chamber of Congress, I think the market is looking at it as a good result,” Shawn Cruz, chief trade strategist at TD Ameritrade, he said in an interview. “They actually want a bit of a jam out of Washington.”
- “Inflation statistics are going to be more important than the election,” Michael Darda, chief economist at MKM Partners, said on Bloomberg TV. “Inflation will tend to lag behind the cycle, so if the Fed goes after lagging indicators with a very rapid succession of interest rate hikes and quantitative tightening, there is a very significant risk that the Fed will significantly overshoot neutrality.”
- “The uptick from the stagnation is a bit of a stretch as we were already there,” said Victoria Greene, CIO of G Squared Private Wealth. “Investors will need to temper expectations about tonight’s results. Many races held can take weeks, or God forbid, months before we know the results. Politics matter personally, less so for the markets.”
Treasuries were higher across the board on Tuesday, with the benchmark 10-year rate falling as much as 9 basis points. Meanwhile, traders reduced bets on rate hikes, with swap markets still tipped towards a 50 basis point hike from the Fed in December. The most notable moves were further afield, with a peak reaching just over 5 percent in the first half of 2023.
Nvidia Corp. rose when it began producing a processor for China. Take-Two Interactive Software Inc. fell after lowering its net booking forecast.
Europe’s Stoxx 600 rallied after a weak open. Chinese stocks halted a rally as traders factored in a rise in virus infections and official comments defending COVID Zero. Oil fell as China’s renewed commitment to strict COVID-19 policies overshadowed the global market backdrop of declining fuel inventories.
Key events this week:
- Midterm elections in the United States, Tuesday
- EIA Oil Inventory Report, Wednesday
- China Aggregate Financing, PPI, CPI, Money Supply, New RMB Loans, Wednesday
- US Wholesale Inventories, MBA Mortgage Applications, Wednesday
- Fed officials John Williams and Tom Barkin speak at events Wednesday
- US CPI, US Initial Jobless Claims, Thursday
- Fed officials Lorie Logan, Esther George, Loretta Mester speak at events Thursday
- US University of Michigan Consumer Sentiment, Friday
Some of the main movements in the markets:
- The S&P 500 was up 0.6 percent at 4 pm New York time.
- The Nasdaq 100 rose 0.8%
- The Dow Jones Industrial Average rose 1 percent
- MSCI World Index rose 0.8%
- The Bloomberg Dollar Spot Index fell 0.4 percent
- The euro rose 0.5 percent to $1.0071
- Sterling rose 0.2 percent to $1.1536.
- The Japanese yen rose 0.7% to 145.63 per dollar.
- Bitcoin fell 12 percent to US$18,172.17
- Ether fell 17 percent to US$1,310.88
- The 10-year Treasury bond yield fell seven basis points to 4.14 percent.
- Germany’s 10-year yield fell six basis points to 2.28 percent.
- UK 10-year bond yields fell nine basis points to 3.55%
- West Texas Intermediate crude fell 2.8% to $89.18 a barrel.
- Gold futures rose 2.1% to $1,715.10 an ounce.
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