Uncertainty About Election Results May Lead To Pullback On Wall Street

The major U.S. index futures are currently pointing to a lower open on Wednesday, with stocks likely to give back ground after moving sharply higher over the three previous sessions.

Traders may look to cash in on recent strength in the markets amid lingering uncertainty about the results of the U.S. midterm elections.

Control of both houses of Congress remains up for grabs following yesterday’s elections, although Republicans are projected to earn a narrow majority in the House.

The performance by Republican was not as strong as many had expected, with many candidates backed by former President Donald Trump underperforming.

It remains unclear which party will have a majority in the Senate, as key races in Georgia, Wisconsin, Nevada and Arizona currently remain undecided.

A slump by shares of Disney (DIS) may also weigh on Wall Street, with the entertainment giant plunging by 8.5 percent in pre-market trading.

The steep drop by Disney comes after the company reported fiscal fourth quarter results that missed analyst estimates on both the top and bottom lines.

On the other hand, shares of Meta Platforms (META) are likely to see initial strength after the Facebook parent announced plans to cut more than 11,000 jobs.

Overall trading activity may remain somewhat subdued, however, as traders look ahead to tomorrow’s highly anticipated report on consumer price inflation.

Stocks showed a strong move to the upside in morning trading on Tuesday before pulling back sharply in the early afternoon. The major averages once again benefited from late-day strength, however, closing firmly in positive territory.

The Dow jumped 333.83 points or 1.0 percent to 33,160.83, ending the session at its best closing level in well over two months. The Nasdaq also climbed 51.68 points or 0.5 percent to 10,616.20, while the S&P 500 advanced 21.31 points or 0.6 percent to 3,828.11.

The higher close on the day reflected recent upward momentum, with the major averages adding to the strong gains posted Monday and last Friday to further offset last week’s pullback.

The continued strength on Wall Street also came as traders awaited the outcome of today’s U.S. midterm elections, which will determine control of Congress.

Republicans are expected to take control of the House and possibly the Senate, and traders are said to prefer a divided government, as times when the White House and Congress are controlled by opposite parties have historically been positive for Wall Street.

“We might not get all the results tonight but it seems Republicans have a very good shot at gaining control of the House and that could be confirmed early tomorrow morning,” said Edward Moya, senior market analyst at OANDA.

Traders also continued to look ahead to Thursday’s report on consumer price inflation, as the data could have a significant impact on the outlook for interest rates.

Economists expect a modest slowdown in the annual rate of consumer price growth, which could add to optimism about a slowdown in the pace of rate hikes.

The early afternoon pullback by stocks coincided with a steep drop by Bitcoin and other cryptocurrencies, which followed news Binance, the world’s largest cryptocurrency exchange, reached a deal to buy competitor FTX.

Gold stocks showed a substantial move to the upside on the day, resulting in a 6.4 percent spike by the NYSE Arca Gold Bugs Index. The index soared to its highest closing level in nearly four months. The rally by gold stocks came amid a sharp increase by the price of the precious metal.

Semiconductor stocks also turned in a strong performance, driving the Philadelphia Semiconductor Index up by 2.2 percent to a one-month closing high.

Chemical stocks also saw considerable strength following upbeat earnings news from DuPont (DD), as reflected by the 1.8 jump by the S&P Chemical Sector Index. With the gain, the index reached best closing level in almost two months.

Steel, computer hardware and biotechnology stocks also showed notable moves to the upside, while tobacco stocks gave back ground.

Commodity, Currency Markets

Crude oil futures are falling $0.72 to $88.19 a barrel after plunging $2.88 to $88.91 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $1,710.90, down $5.10 compared to the previous session’s close of $1,716. On Tuesday, gold surged $35.50.

On the currency front, the U.S. dollar is trading at 146.44 yen compared to the 145.68 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.0023 compared to yesterday’s $1.0074.

Asia

Asian stocks turned in a mixed performance on Wednesday as investors fretted about a surge in new Covid infections in some Chinese cities and monitored the U.S midterm election results. Thursday’s U.S. CPI data also remained on investors’ radar.

Chinese shares ended lower as COVID-19 cases in the country continued to surge and inflation data painted a rather gloomy picture. The benchmark Shanghai Composite Index slid 0.5 percent to close at 3,048.17.

China’s consumer inflation slowed more than expected in October, while the annualized producer price index fell for the first time in October since December 2020, separate reports showed.

Hong Kong’s Hang Seng Index slumped 1.2 percent to 16,358.52 on concerns that a Republican win in U.S. midterm elections may lead to increased scrutiny on Chinese tech firms.

Japanese shares fell from a two-month high as energy stocks declined, offsetting gains in the tech sector. The Nikkei 225 Index dropped 0.6 percent to 27,716.43, while the broader Topix closed 0.4 percent lower at 1,949.49.

Inpex Corp. gave up 3 percent after a sharp decrease in crude prices overnight on China demand concerns. Electric-vehicle battery manufacturer GS Yuasa lost 7.4 percent after reporting disappointing earnings.

Nintendo plummeted 7.1 percent after the videogame maker reduced its Switch sales forecast for the year ending March 2023.

Seoul stocks extended gains for a fourth straight session as investors watched the U.S. midterm election results.

The Kospi climbed 1.1 percent to 2,424.41 as the Korean won strengthened amid continued buying by foreign investors. SK Hynix gained 1.7 percent and LG Chem added 3.5 percent.

Australian markets rose for a fourth consecutive session as higher iron ore prices lifted mining stocks. The benchmark S&P/ASX 200 Index rose 0.6 percent to 6,999.30, while the broader All Ordinaries Index gained 0.5 percent to end at 7,187.40.

Miners BHP, Rio Tinto and Fortescue Metals Group rallied 2-3 percent. National Australia Bank fell 0.9 percent after forecasting slower lending growth from rising interest rates.

Europe

European stocks have slipped into the red on Wednesday as investors await the results of Tuesday’s midterm elections in the United States. Early results from the elections showed Republicans are likely to narrowly win control of the U.S. House.

The dollar has edged higher ahead of the U.S. consumer price inflation report due on Thursday, which might suggest the path for interest rates ahead.

Economists expect a modest slowdown in the annual rate of consumer price growth, which could add to optimism about a slowdown in the pace of rate hikes.

While the German DAX Index has slid 0.7 percent, the French CAC 40 Index and the U.K.’s FTSE 100 Index are both down by 0.5 percent.

Evotec has moved sharply lower after the drug discovery development company kept its outlook for the full year unchanged.

Utility E.ON has also moved to the downside after high energy costs dented its earnings in the January-September period.

Lender Commerzbank has also tumbled after reporting a 52 percent decrease in its third-quarter net profit.

Flutter Entertainment has also fallen in London despite the gambling group upgrading full-year revenue guidance for its fast-growing U.S. business.

Media firm ITV has also slumped after its third-quarter advertising revenue fell 14 percent amid difficult year-ago comparisons and continued “uncertainty.”

Aviva has also declined. The insurer reiterated plans for a share buyback program after reporting a rise in nine-month gross written premiums.

Funeral-related services provider Dignity has also moved lower after it reported a loss for the past quarter.

Marks & Spencer has also fallen. The retailer has put off a decision on resuming shareholder payouts until closer to the end of its fiscal year.

Meanwhile, Deutz AG, an internal combustion engine manufacturer, has jumped after posting improved earnings in the third quarter.

U.S. Economic Reports

The Commerce Department is scheduled to release its report on wholesale inventories in the month of September at 10 am ET. Wholesale inventories are expected to increase by 0.8 percent.

At 10:30 am ET, the Energy Information Administration is due to release its report on oil inventories in the week ended November 4th.

Crude oil inventories are expected to rise by 1.1million barrels after falling by 3.1 million barrels in the previous week.

Richmond Federal Reserve President Thomas Barkin is scheduled to speak on the economic outlook before the Top of Virginia Economic Summit 2022 at 11 am ET.

At 1 pm ET, the Treasury Department is due to announce the results of this month’s auction of $35 billion worth of ten-year notes.

Stocks In Focus

Shares of Upstart Holdings (UPST) are moving sharply lower in pre-market trading after the AI lending platform reported a wider than expected third quarter loss and provided disappointing guidance.

Buy-now-pay-later company Affirm Holding (AFRM) is also likely to see initial weakness after reporting a wider than expected fiscal first quarter loss.

On the other hand, shares of Axon (AXON) are seeing significant pre-market strength after the Taser maker reported better than expected third quarter results and raised its full-year guidance.