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Markets Rally Following Mid-Term Elections

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With the market having already priced in the no-surprise mid-term election results, in which the Democrats took the House and the GOP retained the Senate, we’re looking at a status quo on the festering trade war and a potential move away from fiscal stimulus for a spell.

Following the mid-term election results, global stocks gained, along with Wall Street indexes, and the dollar fell as future fiscal stimulus lost its momentum, setting the market up for a strong open this morning.

Right at the open, the Dow was up over 200 points, then increased its gains by 1:25 EST to about +385 points:

(Click to enlarge)

The S&P 500 was up almost 45 points:

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The return to stocks suggests that investors aren’t worried about a new set-up that might see a reversal of corporate tax cuts or deregulation measures that have spurred stocks for the past year. 

Investors have also been worried that inflation would rise, sparking more Fed intervention in interest rates, but as Morgan Stanley’s Michael Zezas said in a note to clients today, “The policy path implied by this outcome shifts the narrative away from rising rates at least temporarily”.

“In a dispassionate way the equity markets probably got the outcome they wanted. The concern that an emboldened Republican party retaining both houses might have embraced another round of tax cuts, thereby increasing the deficit, has receded,” Sean Darby, chief global strategist at Jefferies, noted in a Wednesday research report. “Meanwhile, the worry was that if the Democrats had won back both houses, the tax cuts and regulatory changes might have been rolled back or rescinded,” he wrote.

Trump hailed the election outcome, oddly, as a boon for trade deals:

(Click to enlage)

Mid-Term Movers

There’s nothing that could benefit healthcare stocks right now more than a divided Congress. With the Democrats in the control of the House and no clear legislative push on healthcare evident from this party, healthcare stocks can take a bit of a breather.

The results of the mid-term elections likely decrease the possibility that there will be any significant legislative move to reduce medical costs. It’s bad for healthcare, but good for stocks in this sector. Related: What Will The Next Global Economic Crisis Look Like?

One of the biggest movers was Buffett-owned DaVita Inc. (NYSE:DVA) were up over 12 percent this morning. The dialysis provider had a lot to lose in mid-term elections thanks to a California ballot measure that would have capped what it could earn in the state on certain patients, but voters rejected that measure.

Investors will also be looking at big pharma stocks, which might get a reprieve from Trumps war on pricing.

All the big pharma stocks are rallying:

(Click to renlarge)

Johnson and Johnson (NYSE:JNJ) was trading up this morning by $1.04, while Merck (NYSE:MRK) was trading up similarly, and GlaxoSmithKline (NYSE:GSK) was up $0.65.

On the trade front, this morning saw shares of Caterpillar—one of the biggest losers in Trump’s trade war—rally over 3 percent.

Overall, there is some sentiment that if the Democrats took over the House, it could have “the potential to reduce downside risks from trade policy friction,” Deutsche Bank's chief equity strategist Binky Chadha wrote last week.

"Congressional investigations and potential impeachment proceedings, even though nominal, would likely use up significant bandwidth while a growing number of Democrats and even Republicans are likely to attempt reducing Presidential power in dealing with trade,” he added.

In the meantime, all attention will turn to the Fed’s two-day meeting that launches today, with analysts not expecting another rise in interest rates, though they have already priced in a December hike.

By Fred Dunkley for Safehaven.com

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