Dow tumbles over 600 as tightly contested midterm races raise uncertainty

Wall Street ended sharply lower on Wednesday as Republican gains in midterm elections appeared more modest than some expected, with investors also focusing on upcoming inflation data that will provide clues about the severity of future interest rate hikes.

The Dow Jones Industrial Average slid 646.89 points, or 2%, to 32,513.94, the S&P 500 was down 2.1%, and the Nღasdaq fജell 2.5%.

Republicans made modest gains and were favored to win control of the House of Representatives, though control of the Senate may once again be decided in Dec. 6 runoff elections in Georgia. Many of ෴the most competitive races were too clo💖se to call.

“What was really more expected in the market was a red wave,” said Jay Hatfield, CEO of Infrastructure Capital Management in New York. “I think we were in a unique situation where the more the Republicans won, the better off the market would have been. At least there would have been some stocks strongly rallying, like defense and energy stocks.”

“There is a likelihood that we have divided government… the general rule of thumb as far as markets are concerned is gridlock is good — fewer policy changes and less risk to individual sectors,” said Art Hogan, chief market strategist at B. Riley Financial.

A split government, with a Democrat in the White House, has historically been favorable for stock markets as it paves tꦫhe way for partisan standoffs on contentious policy changes such as the federal debt limiꦑt.

The S&P 500 has posted a gai💧n in every 12-month 𝔍period after the midterm vote since World War Two, according to Deutsche Bank.

Though a surprise victory fo🤪r Democrats could raise concerns about tech-sector regulation as well as budget spending that could add to red-hot inflation, according to market strategists.

With the election outcome still uncertain, investors were focusing on Thursday’s inflation data, which is expected to put the limelight on the Federal Reserve’s tightening cycle.

“CPI is one of the more important inputs in terms of the inflation environment. You’d be hard pressed to find many investors that want to make a big bet in front of (the report),” said Hogan.

Traders curꩵrently see a 57%🍎 chance of that the Fed would raise rates by 50 basis points in December to 4.25%-4.5%, according to CME Fedwatch tool.

Meta Platforms climbed 5.2% as the Facebook-parent said it would let go of 13% of its workforce, or more than 🎀11,000 employees, in one of the b✅iggest tech layoffs this year.

Walt Disney slumped 13% as the entertainment giant racked up more losses from its push into streaming video.