Stocks closed sharply lower Wednesday as several key midterm election races remained undecided. While it seems increasingly likely that the Republicans will take control of the House of Representatives, the Senate remains too close to call. Markets hate uncertainty, but the historical prognosis for stocks after a midterm has been positive – we’ll explain more below.
Another headwind for stocks today was the continued sell-off in cryptocurrencies and crypto-related stocks following Tuesday’s news that crypto exchange Binance has purchased non-US assets from rival FTX. Bitcoin fell 11.0% to $ 16,190 (Bitcoin exchange 24 hours a day; prices reported here are from 4 pm). Among stocks, crypto exchanges Coinbase Global (Coins (opens in new tab)) fell 9.5%, while online trading app Robinhood Marketplace (HOOD (opens in new tab)) fell 13.8%.
This puts pressure on Nasdaq composite, and the technology-heavy index fell 2.5% to 10,353. The widest S&P 500 Index (-2.1% to 3,748) and the blue-chip Dow Jones Industrial Average (-2.0% to 32,513) suffered significant losses, too. Today’s drop had major market indexes snapping a three-day winning streak.
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Also on Wall Street’s radar is tomorrow morning’s consumer price index (CPI) for October. José Torres, senior economist at Interactive Brokers, expects the headline reading to increase 8.1% year over year, with core CPI, which excludes volatile food and energy prices, to be 6.6% higher. Another hot reading could push the Fed to keep monetary policy tight, Torres said, which would in turn pressure actions.
Analysts say Disney remains a post-earnings buy
Still, long-term investors should not be too concerned about this latest round of market volatility. “History shows that during midterm election years, equity markets tend to struggle to the top in the fourth quarter, before rallying,” said John Lynch, chief investment officer for Comerica Wealth Management.
Another encouraging data point from Lynch: “Since 1950, the average drawdown for the S&P 500 has been 17.0% in midterm election years. However, after reaching its trough, in the following 12-month period, The index recovered to one. – third on average.” The S&P 500 has already exceeded this average drawback in 2022, by 21.3% for the year-to-date, and while more losses may come, history shows that a significant rebound will eventually occur. This, says Lynch, underscores the importance for investors “not to be discouraged by the volatility of midterm election years,” as well as “his belief that the best course of action is to stay the course with long-term investment plans and remember the importance of. ‘time in’ vs ‘time’ the market.”
And the good news for investors is that after the stunning losses the stock market has seen this year, many high-quality stocks are trading at bargain-basement prices now. Take Facebook parent Meta Platforms ( META ), for example, and the former mega-cap tech stock is down nearly 70% since the start of the year. Walt Disney (TEN (opens in new tab)) is another. Dow Jones stock fell 13.2% today after a dismal earnings report, but analysts agree DIS is still a resounding Buy. Here, we explain why.
