The US market closed broadly higher on Wednesday as the midterm election results came in within expectation, with Democrats securing a majority in the House of Representatives. Yesterday, the S&P 500 Index rallied 2.1% to 2,816.4 points while the European stock markets also surged, with the Euro Stoxx 50 Pr Index rising 1.2% to 3,246.2 points.

Democrats Vs Republicans

The Democrats secured a majority in the House of Representative, winning control of the House, while the Republicans retained their hold on the Senate, an outcome that splits the Congress. The Democrats surpassed the 218 seats required for a House majority by net gaining the 23 seats required.

The US market rallied on the back of this news, with both the Dow Jones Industrial Average and S&P 500 Index gaining 2.1% on Wednesday, while the Nasdaq Composite Index gained 2.6%. Stocks rose across multiple sectors; among financial-services stocks, MasterCard gained 4.6% while Visa rose 2.8%. Amazon, one of the most beaten-down stocks in the past month, also surged 6.9%. Likewise, both Apple Inc. and Google rose 3.0% and 3.6%, respectively. Healthcare stocks also rallied as concerns that significant changes will be made to the existing US health system, which could harm their profits, reduced after the midterm elections.

Investors’ optimism According to a news article on CNBC (Wednesday), an analyst said they believe that a split Congress is the best outcome for US and global equity markets. He continued, “As the President cannot count on Congress or the Fed for more easing, he will need to do what is in his power to keep the economy rolling-drop the damaging trade war and turn it into a winning deal.”

Investors expect Trump’s business-friendly policies to continue, while some expressed their optimism about Congress providing a larger check on Trump’s more disruptive market actions. Historically, equity markets see strong returns when Congress is divided. Meanwhile, the article also mentioned that trade remains an area where Trump still has most control as tariffs on foreign goods are implemented through the executive branch.

Source: Macquarie Research - 8 Nov 2018