Investors look to boost U.S. stock market after midterm election uncertainty lifts

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Democrats will continue to control the Senate, according to projections from several major news services, including Fox News and CNN.

Both report that Democrats will retain power in the Senate thanks to Democratic Senator Catherine Cortez Mastro who was declared the winner in Nevada on Saturday night in her race against Republican challenger Adam Laxalt.

Democrats now hold 50 seats to 49 seats held by Republicans with one seat to be decided in Georgia where a runoff will be held between Republican Hershel Walker and Democratic Sen. Raphael Warnock on Dec. 6, Fox News reported.

Even if Walker were to win in Georgia, the Democrats would still be in control with Vice President Kamala Harris’ deciding vote, Fox News wrote.

The House of Representatives still up for grabs

Republicans are still hoping to regain control of the House of Representatives and appear on track to do so, needing to win 7 of the two dozen congressional races across the country are still up in the air.

The latest reports show Republicans won 211 seats out of the House’s 435 members – just short of a 218-member majority.

Early stock market impact

The price action early last week clearly demonstrated the kind of effect the midterm elections could have on the stock market should investors choose to use them as a short-term indicator. However, as a short-term indicator, it would quickly be replaced by other fundamental events that have an even greater impact on short-term stocks.

That being said, it’s best to avoid relying on midterm elections for your short-term decisions and instead consider them for your long-term strategies.

The stock market volatility at the start of the week confirmed that investors do not like uncertainty. In times of uncertainty, investors tend to sell. We saw this in the aftermath of last week’s midterm elections, with so many undecided Senate and House races on the first day.

The blue-chip Dow Jones Industrial Average and the heavily tech-weighted NASDAQ Composite fell sharply, while the benchmark S&P 500 fell 1.2%.

Short-term bears burned by bullish consumer inflation data

Short-term investors who panicked and reduced their positions as the results were still uncertain last Wednesday, were burned on Thursday, following the release of the bullish report for the US consumer price index (CPI). US stocks rose sharply on the news, forcing those who reacted negatively to midterm election uncertainty to chase prices higher.

This is just one event, but it is useful enough to demonstrate that investors are more inclined to react to short-term indicators such as consumer inflation, which have a greater impact on monetary policy and primarily on the health of the economy, as the midterm elections that tend to have a greater long-term impact.

It may also indicate that the effects of a midterm or presidential election tend to fade over the long term, such that their impacts are not felt as much as volatility is capped.

Democrat victory won’t hurt

Despite the Democrats’ victory and their propensity to be anti-business and pro-regulation, their victory should not hurt the market on Monday. First, the weekend news lifted the uncertainty, allowing investors to move on. Second, investors are focused on Federal Reserve policy and future rate hikes.

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