Stocks slip as control of Congress remains unclear

(CNN) -- Wall Street was betting on a red wave in the midterm elections Tuesday. But so far it appears that didn't happen. And now investors are seeing red on their trading screens Wednesday.

Stocks dipped, with the Dow sliding more than 475 points, or 1.4%, in midday trading. The S&P 500 and Nasdaq fell 1.5% and 2% respectively.

One stock in particular that had been surging in anticipation of a sweeping victory for the GOP got hit hard Wednesday.

Digital World Acquisition Corp., a so-called blank check, special purpose acquisition company, or SPAC, that is hoping to merge with former President Donald Trump's media company, plunged about 20%. The stock had skyrocketed more than 65% Monday.

The market rallied sharply during the past three days following a historic surge for stocks in October. That was due in part to expectations of a convincing victory for Republicans that could give the party control of one or both chambers of Congress — a development that could lead to more investor-friendly gridlock.

But it's not yet clear if Democrats will actually lose their majority in either chamber.

"The market expected a different outcome. There may be disappointment among investors that there won't be a more robust check on the Biden administration," said Brian Gardner, chief Washington policy strategist with Stifel. "There will still be gridlock, but there is confusion and a lack of clarity."

Gridlock isn't great as inflation remains in focus

Gardner said the chance of any meaningful new stimulus bills getting passed between now and the 2024 presidential elections are "very slim" -— even if the economy slips into a recession. The best that the market might be able to hope for is that Washington can pass a federal budget and steer clear of more drama about lifting the debt ceiling.

"The two parties don't see it in their best interest to cooperate with the other side," Gardner said.

That may not necessarily be good news for the longer-term though.

"Right now you want the decision making in Washington to be quick, in an environment with slowing growth and concerns about a recession rising," said Callie Cox, US investment analyst at eToro.

Still, as the midterm dust settles, investors may now shift their attention back to inflation and the economy. The government will report the October consumer price index figures Thursday morning.

Economists expect that CPI rose 8% in the past 12 months. That's still historically high, but it would be a slight pullback from the 8.2% increase in September.

Investors are hoping that if inflation continues to cool, the Fed may be able to finally slow the pace of interest rate hikes following four consecutive increases of three-quarters of a point.

With that in mind, investors probably should focus more on the economy and corporate earnings — especially since history shows that stocks have tended to go up following elections, regardless of which party is in power.

"Elections are a very important part of the puzzle, but it's only one of many factors," said Kevin Green, senior researcher at Dimensional Fund Advisors. "Markets have performed remarkably similar during periods of a Republican or Democratic controlled Congress."

Still, there are some concerns about weaker profits as the economy slows. Shares of Disney, gaming company Roblox and electric vehicle startup Lucid all plunged more than 10% following weak results.

Facebook owner Meta Platforms also confirmed a major round of layoffs...but the stock rallied more than 6% on the news.

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