US stocks fell sharply on Wednesday after three days of earnings as investors consider a mixed verdict from by-elections results that raised expectations about who would control the U.S. House of Representatives and Senate.
Stocks rose for a third day in a row on Tuesday, with major indexes fluctuating throughout the day, but ending higher at market close.
Investor optimism was built on expectations that Republicans would hold ground and create gridlock in Washington. But the republican red wave failed to materialize in intermediate exams in the USA. Democrats managed to flip a crucial Senate seat, with John Fetterman defeating Mehmet Oz in the Pennsylvania race. As of Wednesday morning, control of both the House and Senate remained in place.
The Georgia Senate race is headed for a runoff, with none of the major candidates on track to win a majority of the popular vote.
The year after that by-elections tends to see the highest return on equity, according to LPL Financial.
“Going back to 1951, a Democratic president with a Republican or divided Congress, the two most likely cases in this election, has seen an average S&P 500 return of more than 17% versus an overall average of just over 12%,” Barry Gilbert , asset allocation strategist at LPL Financial, wrote in a note.
The final outcome of mid-term results may not be known for days or weeks, but Wall Street professionals do not expect a big move in the markets.
“We expect the impact of the election to tilt the market positively, in part because we’re going to put it behind us,” Gilbert added. “As for the markets, the impact of policy is likely to be small and market participants will continue to be more focused on central bank policy and inflation.”
Until then, investors will turn their attention to Thursday morning’s inflation report. Economists polled by Bloomberg expected a core consumer price index of 7.9% on an annual basis, up from 8.2% the previous month. Even if the report shows that prices are starting to ease, core CPI remains well above the Fed’s comfort zone.
“We’re still well above that 2% target,” said Rebecca Felton, senior market strategist at RiverFront Investment Group Yahoo Finance Live in Tuesday. “So we don’t believe the Federal Reserve is going to weaken anytime soon.” And so interest rates will stay higher for longer and inflationary pressures will obviously stay higher for longer as well.”
In corporate news, Meta Platforms said the social media giant will cut more than 11,000 jobs, or about 13% of staff, as the company restructures to deal with a slumping digital ad market. Disney (DIS) published weaker than expected fourth-quarter earnings on Tuesday, with the streaming business leading to wider losses that offset strong performance in theme parks. Disney availability lost more than 12% in afternoon trade.
elsewhere cryptocurrencies were under pressure as investors digest whether crypto exchange Binance will acquire rival FTX. Bitcoin fell more than 15% to trade at its lowest level in two years.
Crypto-related stocks also took a hit. Competitor cryptocurrency exchange Coinbase (COIN) shares fell 5.3%. Robinhood Markets (HOOD) fell by over 7%. According to art SEC Filing in May Sam Bankman-Fried, the founder of FTX, bought 7.6% of the company’s Class A shares. In an interview reported by Wall Street Journal, he said his company is open to partnering with Robinhood.
In bond markets, the yield on the 10-year Treasury rose to around 4.1% on Wednesday. And in oil markets, Brent crude, the international benchmark, was down 1.1% at $94.35 a barrel, extending losses for a third straight day, while the dollar also erased losses.
Danny Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv