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Election results: Stock market bullishness rises

Senor on GOP reaction to midterms
Senor on GOP reaction to midterms 03:31

LONDON - Wall Street is set to open higher Wednesday after the U.S. midterm elections showed the Democrats winning control of the House of Representatives and the Republicans keeping a majority in the Senate.

Though the election results increase the potential for political gridlock in Washington, traders were mostly expecting this outcome, so markets haven't been as volatile as after other political events, such as the 2016 presidential vote.

One reason Wall Street is less worried about this election is history: Every midterm election over the past 60 years has been followed by a rise in stocks, sometimes called a "relief rally," market research shows. 

Over the past 50 years, the S&P 500 has jumped an average of 16 percent following a midterm election, according to Capital Economics.

History doesn't predict the future, but the post-midterm trends may offer solace to investors whipsawed by the volatile trading last month. Analysts said one reason for the October slump was that markets were pricing in preelection uncertainty.

But that has now changed. "One thing is for sure -- the cloud of uncertainty from the last few weeks has lifted," said Mike Read, founder of social trading platform Pelican. "Underinvested traders will return to the markets."

That appeared to be the case in Europe, where stocks enjoyed bumper gains. Britain's FTSE 100 was up 1 percent at 7,115, while Germany's DAX also rose 0.9 percent to 11,582. The CAC 40 in France was 1.2 percent higher at 5,135.

Now it's a divided Congress

Wall Street was poised for similar gains. At around 8:50 a.m. ET, both the Dow and S&P 500 futures were up by 0.6 percent and 0.7 percent, respectively. Nasdaq spiked 1 percent higher.

The outcome of the vote could magnify President Donald Trump's legal troubles and complicate his policymaking agenda. It was unclear how the divided Congress might affect his pursuit of an "America first" trade strategy that has drawn the U.S. and China, the world's two biggest economies, into a trade war.

"A split Congress will, in all likelihood, not stop Trump from doubling down on tariffs with China," said Neil Wilson, chief markets analyst at

Those concerns help explain why China's main stock market, the Shanghai Composite, fell 0.7 percent to 2,641.

Elsewhere in Asia, Japan's benchmark Nikkei 225 fell 0.3 percent to finish at 22,086, while South Korea's Kospi slipped 0.5 percent to 2,079. But Hong Kong's Hang Seng edged 0.1 percent higher to 26,148, and Australia's S&P/ASX 200 rose 0.4 percent to 5,897.

A primary concern in Asia is the potential for trade tensions to hobble growth for export-reliant economies. Mr. Trump has imposed penalty tariffs of up to 25 percent on $250 billion of Chinese imports, and Beijing has responded with tariffs on $110 billion of American goods.

The dollar, meanwhile, gave up some recent gains, trading down 0.3 percent at 113.09 yen, while the euro advanced 0.5 percent to $1.1485.

Konstantinos Anthis, head of research at financial services firm ADSS, said President Trump will "definitely have a tougher time getting his legislative initiatives through Congress" but that this in "shouldn't be a dampening factor for the dollar itself in the long term."

Potentially more important for the dollar this week, he said, will be the Federal Reserve's latest interest rate announcement on Thursday and its accompanying statement. Though rates are expected to be kept on hold, policymakers are set to signal a further increase next month.

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