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Tuesday, December 6, 2022

Wall Street sank amid tight US election results

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Investors evaluate on the day a less clear result than expected in the elections US midterm, as a better-than-expected performance from Democrats clouded the outlook on issues such as fiscal spending and regulation.

Control of Congress was still up for grabs early Wednesday, with many of the most competitive races still unresolved, making it unclear whether Republicans would break the tenuous Democrats’ hold. Prospects for a “red wave” had evaporated, although Republicans remained favorites to win a majority in the House of Representatives.

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“We’re in a bit of a different situation and it looks like the Biden presidency hasn’t taken a massive hit from this midterm, so the markets are on hold,” said Danni Hewson of AJ Bell in London.

Although macroeconomic concerns and Federal Reserve monetary policy have been the dominant forces behind market moves this yearCapitol politics could influence asset prices.

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If the Republicans manage to gain control of the House of Representatives, it will mean a divided government with Democrat Joe Biden in the White House, an outcome that has historically been accompanied by positive long-term stock market performance.

analysts of Morgan Stanley they wrote this week that a strong Republican result could allay investor concerns about an inflation-fueling increase in fiscal spending and increase the chances the party will freeze spending through the debt ceiling. This could support a rally in 10-year Treasuries and help stocks extend recent gains, they said.

Stocks have historically tended to do better under divided government when a Democrat is in the White House, and investors attribute some of that performance to political gridlock preventing major policy changes.

Analysts forecast a negative reaction from equities if Democrats managed to hold on to majorities in the House and Senate, and Goldman Sachs experts said there would be a risk that additional corporate tax hikes would weigh on profits and a risk that interest rates would be higher to offset likely additional spending.

Source: Ambito

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