Los Angeles Times
A pre-election gain on Wall Street
Stocks rose Monday on the eve of election day as Wall Street looked ahead to the benefits of a possibly split government in Washington, though trading is likely to stay bumpy in a week full of events that could shake the market.
The Standard & Poor’s 500 index rose 1%, while the Dow Jones industrial average gained 1.3% and the Nasdaq composite added 0.9%.
Analysts say many investors seem to be making bets that Republicans will take control of at least one house of Congress. With a divided government, gridlock is more likely than big, sweeping policy changes that could upend tax and spending plans. And historically, when a Democratic White House has shared power with a split or Republican Congress, stocks have seen stronger gains than usual.
“The conventional wisdom that the stock market likes political gridlock is supported by the historical data,” said Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets.
In the meantime, Wall Street is looking ahead to a report scheduled for Thursday, when the U.S. government will show how bad inflation was across the country last month. And that will influence what the Fed does on interest rates.
Economists expect the report to show that the consumer price index was 8% higher in October than a year earlier, which would be a slight slowdown from September’s 8.2% inflation rate.
A fourth straight month of moderating inflation from June’s 9.1% rate could offer some relief. Such a trend line could also give the Fed leeway to loosen up in its campaign to hike rates aggressively to force inflation lower.
Rate hikes take a long time to take full effect, though economists debate exactly how long that is.
“The lags are different each cycle and for different reasons, and we just don’t know when the tightening will have the impact that was intended,” said Keith Buchanan, portfolio manager at Globalt Investments.
Even though the Fed has said that it may soon pare back the size of its increases, it is still warning that it may ultimately hike rates higher than expected because of how stubborn high inflation has been.
Monday’s gains for Wall Street came despite a shaky showing for its most influential stock. Apple rose 0.4% after dropping earlier in the day. It had warned customers that they’ll have to wait longer to get the latest iPhones after anti-COVID restrictions were imposed on a contractor’s factory in China.
Speculation has been rising recently that China may move away from its business-damaging zero-COVID policies. If the world’s second-largest economy did, it could provide a boost to the global economy.
Besides the election, inflation and China, earnings reports from U.S. companies are also pushing stock prices to swing.
The reporting season for summertime profits is roughly 85% done, and S&P 500 companies are on track to deliver growth of a little more than 2%. That’s close to analysts’ forecasts, though several companies have been warning of tougher times ahead as inflation remains high and the economy appears increasingly fragile.
Analysts are now forecasting a drop in S&P 500 profits for the final three months of the year of nearly 1.5%. They had been forecasting growth of 4% at the end of September.
Bond yields rose. The yield on the 10-year Treasury climbed to 4.21% from 4.16% late Friday. The yield on the two-year Treasury increased to 4.73% from 4.66%.
The S&P 500 rose 36.25 points to 3,806.80. The Dow jumped 423.78 points to 32,827.00, and the Nasdaq climbed 89.27 points to 10,564.52.