Midterm re­sults give Dow 545-point boost

USA TODAY International Edition - - MONEY - Adam Shell

If the big rally on Wall Street af­ter the midterm elec­tions is any guide, grid­lock is good for stocks.

U.S. eq­ui­ties jumped sharply higher Wed­nes­day af­ter the midterm elec­tions set the stage for a newly di­vided Congress, an out­come that eased fears about a big change in pol­icy that could hurt cor­po­rate profitabil­ity.

The Dow Jones In­dus­trial Aver­age ral­lied more than 545 points, or 2.1 per­cent, to 26,180, boost­ing its gain for the year to 5.9 per­cent and leav­ing it just 2.4 per­cent shy of its Oc­to­ber record high. The rally was broad, with the Stan­dard & Poor’s 500 stock in­dex ris­ing 2.1 per­cent and the tech­nol­ogy-dom­i­nated Nas­daq com­pos­ite gain­ing 2.6 per­cent.

Wall Street woke up to a par­ti­san power split in Congress and a likely pe­riod of leg­isla­tive grid­lock af­ter the Democrats re­gained con­trol of the House, end­ing two years of Repub­li­can con­trol of both branches of Congress un­der Repub­li­can Pres­i­dent Don­ald Trump. The GOP re­tained its ma­jor­ity in the Se­nate.

The vote re­sult, how­ever, was widely ex­pected by in­vestors. The new Capi­tol Hill align­ment that will take effect in Jan­uary isn’t viewed as a ma­jor game-changer for the econ­omy or mar­kets, largely be­cause the split Congress makes it un­likely that leg­is­la­tion would undo parts of Pres­i­dent Trump’s agenda – such as large tax cuts and dereg­u­la­tion of busi­ness.

In­vestors also avoided the most­feared Wall Street out­come, a so­called “blue wave,” or Demo­cratic sweep of both cham­bers of Congress. That could have put the pres­i­dent’s eco­nomic poli­cies un­der as­sault and boosted the odds of a Demo­cratic House push­ing for Trump’s im­peach­ment.

“Ev­ery­thing played out ac­cord­ing to script,” Stephen Innes, head of Asia trad­ing at Oanda, told USA TO­DAY. “The Trump agenda is not in se­ri­ous jeop­ardy.”

Still, the House will likely make things tough on Trump and move to block his agenda, adds Mark Ham­rick, se­nior eco­nomic an­a­lyst at Bankrate.com

“House Democrats will turn up the pres­sure on Pres­i­dent Trump through in­ves­ti­ga­tions and over­sight,” Ham­rick said.

Leg­isla­tive grid­lock has his­tor­i­cally been good for finan­cial mar­kets. In fact, in years with a Repub­li­can pres­i­dent and a Repub­li­can-con­trolled Se­nate and Demo­crat-run House in place, the Stan­dard & Poor’s 500 stock in­dex has posted aver­age gains of 10.8 per­cent, ac­cord­ing to data from Strate­gas Re­search Part­ners.

“A split Congress means that grid­lock is more likely, and that’s been fine for mar­kets in the past,” says Kate Warne, in­vest­ment strate­gist at Ed­ward Jones.

In the past, af­ter the un­cer­tainty around the midterm elec­tions has been elim­i­nated af­ter the vote, stocks have per­formed well, post­ing higher re­turns a year af­ter ev­ery midterm elec­tion since World War II.

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