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    Markets Slide After Unexpectedly Strong Inflation Report

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    Wall Street was rattled by signs of stubborn inflation on Wednesday, with stock prices sliding and government bond yields, which underpin interest rates throughout the economy, jolting higher.The S&P 500 fell over 1 percent for the second time this month and only the fifth time this year. Other major indexes, including the tech-heavy Nasdaq Composite and the Russell 2000 index of smaller companies, also fell.The sharp moves followed a consumer inflation report that came in hotter than expected, with prices rising 3.5 percent in March from a year earlier, marking another month of stubbornly high inflation. That made it harder for investors to dismiss earlier signs that the progress in cooling inflation was patchy.“The stalled disinflationary narrative can no longer be called a blip,” said Seema Shah, chief global strategist at Principal Asset Management.That means the Federal Reserve could keep interest rates — the central bank’s primary tool for fighting inflation — elevated for longer.Bets on a rate cut in June have dwindled since the data was released, pushing the first expected cut back later in the year. In January, investors had thought the Fed could cut rates as early as March.So far this year, the fading prospects for rate cuts, which would be seen as supportive for the stock market, have yet to derail a tremendous rally that has taken hold in recent months. But some analysts question how long that can continue, with higher rates eventually squeezing consumers and crimping corporate earnings in a more significant way.The two-year Treasury yield, which is sensitive to changes in interest rate expectations, lurched toward 5 percent on Wednesday, a threshold it hasn’t breached since November.“The Fed is not done fighting inflation and rates will stay higher for longer,” said Torsten Slok, chief economist at the investment giant Apollo, adding that he does not expect any cuts to interest rates this year.Even as many investors noted that the economy remained resilient, the fresh inflation numbers appeared to dim the outlook just as Fed officials had started gaining confidence in their ability to wrangle inflation nearer to their 2 percent target.Lindsay Rosner, head of multi-sector investing at Goldman Sachs Asset Management, said the data did not “eclipse” the Fed’s confidence.“It did, however, cast a shadow on it,” she said. More

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      Inflation Fears Stalk Presidential Politics and the Markets

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      Lawmakers on Capitol Hill are set to grill Jay Powell, the Fed chair, about interest rates and the economy, topics that are top of mind for voters and investors alike.Jay Powell, the Fed chair, will begin two days of testimony on Capitol Hill with inflation a hot topic for voters and markets.Richard Drew/Associated PressInflationary pressure and presidential politics President Biden and Donald Trump dominated Super Tuesday, setting the stage for a rematch of the 2020 election. One topic that’s high on the agenda for voters: Inflation.That means all eyes will be on Jay Powell, as the Fed chair makes a two-day appearance on Capitol Hill this week, for any sign of what’s next on rate cuts.Inflation is kryptonite for any politician, and especially for Biden. Trump again pounded the president on high prices, an issue that’s lifting the Republican in polls even as a range of indicators show that the economy is performing strongly.(The White House is putting the blame on corporations that “try to rip off Americans.” Watch for that theme at Thursday’s State of the Union address.)Powell will appear before the House on Wednesday and before the Senate on Thursday. Data published in recent weeks shows that jobs are plentiful, wages are rising and consumers are still spending. Analysts have upgraded their economic forecasts, raising hopes that a soft landing is likely.But market pros see warning signs. Concerns remain that inflation will stick above the Fed’s 2 percent target, forcing the central bank to put the brakes on interest rate cuts that traders expect to begin in June. The futures market on Wednesday is forecasting three to four cuts this year — down from nearly seven just weeks ago — and the more cautious sentiment has helped drag the S&P 500 lower this week.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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      January Was Awesome for Stock Pickers, but Can They Keep It Going?

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      Most active fund managers beat the market at the start of the year. But history suggests that they’re not likely to keep doing so for long.Over the last 20 years, stock pickers have had a dismal record. Most haven’t come close to beating the overall stock market.But occasionally, there are exceptions. In some periods, stock pickers rule, and the start of this year was one of those times.In fact, it was the best January for actively managed stock mutual funds since Bank of America began compiling data in 1991. It wasn’t just that they turned in handsome returns for investors. The entire stock market did that. The S&P 500 and other stock indexes set records during the month.It was that active stock funds did even better, though not by much, beating various market indexes by less than a percentage point, on average. Still, it was the best single month for these funds — in which managers buy and sell individual stocks whenever they choose to do so — since 2007. That happened to be the best calendar year for stock pickers in decades.There’s no way of knowing how long this streak of outperformance will go on, or why, exactly, it has existed in the first place. But it’s quite possible that it will continue for the balance of the year, and that buying the average actively managed fund will look like a brilliant move. Index funds that mirror the entire market could well lag behind.That said, I think the active fund managers are unlikely to prevail over the long run. The reason is that history shows it’s just too hard to beat the market.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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      A Hot CPI Report Forces a Rethink of Chances of a Soft Landing

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      Worries of higher-for-longer interest rates have grown since Tuesday’s Consumer Price Index report.A hotter-than-expected inflation report has stoked new concerns that a “soft landing” may be out of reach.Michael M. Santiago/Getty Images“No landing” Markets are still on edge after Tuesday’s hot inflation report, as Wall Street suddenly and sharply discounted the odds of imminent interest rate cuts.It has also poured cold water on the belief among many investors that the U.S. economy will achieve a “soft landing.”Why so gloomy? The Consumer Price Index report, which came in above economists’ forecasts, is a stark reminder of the challenges that the Fed faces in bringing down inflation to its 2 percent target. Even after excluding volatile energy and food prices, inflation is holding roughly steady and is well above where the central bank feels comfortable.Shelter costs, including rents, also rose above expectations, and “supercore inflation,” a measure the Fed closely follows that includes common “services” expenditures — like haircuts and lawyer fees — rose 4.3 year-on-year, its highest level since May, according to Deutsche Bank data.Markets responded with a jolt. Investors dumped Treasury notes on Tuesday amid concerns that the Fed will keep borrowing costs higher for longer. That pushed the Russell 2000 down nearly 4 percent, its worst slide in 20 months. (That said, S&P 500 futures were rebounding slightly on Wednesday morning as dip-buyers returned, and Britain reported milder-than-expected inflation data that pushed up stocks in London.)The futures market on Wednesday is pricing in three to four interest rate cuts this year, down from the six to seven projected at the start of the year and all but silencing rate-cut bulls. Such predictions “made no sense in our view,” Mohit Kumar, an economist at Jefferies, wrote in a research note.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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      Stocks Sink as Stubborn Inflation Resets Fed Rate Forecasts

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      Stock markets tumbled on Tuesday as investors slashed their bets on the Federal Reserve taking the brakes off the economy in the coming months, after hotter-than-expected inflation data led traders to expect interest rates will remain higher for longer.The benchmark S&P 500 stock index fell over 1 percent in early trading. The index has only suffered such a large loss on one other day this year, with bullishness about the resilience of the economy and corporate profits continually pushing stocks to new highs.Investors still expect the Fed to pull inflation back to manageable levels without inflicting too much pain on the broader economy. But that forecast was put under pressure on Tuesday by a consumer inflation report that showed prices rising more quickly than had been forecast.The consumer data “came in stronger than either the Fed or the market wanted or expected,” said Greg Wilensky, head of U.S. fixed income at Janus Henderson Investors.The longer inflation remains elevated, the longer the Fed is likely to push off rate cuts, turning the screws on an economy that is already starting to show some signs of weakness, and tempering enthusiasm on Wall Street.Stuart Keiser, an equity analyst at Citi, said the inflation data was “not a game-changer” but that it was likely to drive a short-term retrenchment in the stock market as investors dial back hopes for rate cuts. “Today’s print was clearly not a good one,” he said.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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      Latest CPI Report Is a Crucial Inflation Report Card

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      Investors and the White House will pore over the latest Consumer Price Index report for clues on prices — and potential interest rate cuts.Wall Street and the White House will be looking for inflation clues as they tune in to today’s Consumer Price Index report.Spencer Platt/Getty ImagesInflation back in the spotlight An S&P 500 on a five-week winning streak. A growing economy. Solid wage gains. And growing consumer and business optimism. These are the ingredients for an emerging Goldilocks scenario for the U.S. economy.What would help complete that recipe? Cooling inflation, which would stoke investor hopes that the Fed would soon lower borrowing costs. (That said, Fed officials continue to warn that it’s still too early to talk rate cuts.)The prospects of that economic ideal will be tested on Tuesday with the release of fresh Consumer Price Index data.Here’s what to expect: Economists have forecast a headline C.P.I. reading of 2.9 percent for January on an annualized basis, its smallest gain since April 2021. Core C.P.I., which strips out food and fuel prices, is expected to come in at 3.7 percent on an annualized basis, down from 5.6 percent in January 2023 — strong progress, but well above the Fed’s 2 percent target.There are reasons for caution, however. The slowdown has been driven by goods disinflation and lower energy prices. But economists are closely monitoring how attacks by Houthi rebels on ship traffic in the Red Sea could affect commerce costs and push up oil prices.The cost of crude oil has climbed since the start of the year, though it remains well below the levels hit in the aftermath of the Hamas-led attacks Oct. 7.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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      Wall Street strategists’ bull and bear scenarios for 2024.

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      Wall Street’s forecasts mostly missed this year’s bull market rally. Here’s what strategists are saying about 2024.Last November and December, veteran stock market watchers forecast that 2023 would be a year to forget. They saw high inflation, a looming global recession and rising interest rates as sapping households’ buying power and denting corporate profits. For investors, they penciled in paltry gains and one of the worst performances for the S&P 500 in the past 15 years.But the market pros got the story only partly right. While interest rates did climb to a near two-decade peak, the S&P 500 has surprisingly soared to a near record high. Fueled partly by a rally in the so-called Magnificent Seven megacap tech stocks, it’s risen nearly 25 percent this year, as of Thursday’s close, shaking off a banking crisis, wars in the Middle East and Ukraine, and slowing growth in China’s economy.Crypto managed to do even better. Bitcoin bulls have swept aside a legal crackdown against the industry’s biggest players to fuel an impressive rally. The digital token has gained more than 150 percent this year, making it one of the best performing risky assets.“Twenty twenty-three was a great year for the contrarians,” David Bahnsen, the founder and chief investment officer of the Bahnsen Group, a wealth management firm, told DealBook. “You had macroeconomic concerns a year ago that didn’t come to bear, and you had valuation and financial concerns that didn’t come to bear. And it’s particularly ironic that it didn’t, because actually everything investors feared a year ago got worse.”Wall Street’s outlook for 2024 is rosier. Analysts see lower borrowing costs, a soft landing (that is, an economic slowdown that avoids a recession) and a pretty good year for investors.But if 2023 taught the market pros anything, it’s that forecasts can look out of date pretty fast. A slew of things could disrupt the markets in the year ahead — inflation creeping up again, or not, is one big factor to watch. And there are wild cards, too, with voters expected to head to the polls in over 50 countries next year, including the U.S.Here’s how Wall Street sees 2024 playing out:The bull caseThe median year-end 2024 forecast for the S&P 500 is 5,068, according to FactSet. Such a level would imply an annualized gain of roughly 6 percent for 2024.Bank of America’s equity strategists, led by Savita Subramanian, are among those in the bullish camp. In their annual forecast, they said that the S&P 500 would be likely to close out next year at 5,000, helped by a kind of “goldilocks” scenario of falling prices and rising corporate profits.Goldman Sachs is even more upbeat. Its analysts upgraded their year-end 2024 call on the S&P 500 to 5,100. They made the change after the Fed’s surprise statement on Dec. 13 that the equivalent of three interest-rate cuts were on the table for next year. Lower borrowing costs tend to give consumers and businesses more spending power, which could help Corporate America’s bottom line.Another catalyst: Investors this year put far more money into safe interest-rate sensitive assets, like money market funds, than they did into stocks. That logic could be flipped on its head in 2024. “As rates begin to fall, investors may rotate some of their cash holdings toward stocks,” David Kostin, the chief U.S. equity strategist at Goldman Sachs, said in a recent investor note.The bear caseOn the more pessimistic side is JPMorgan Chase, which carries a 2024 year-end target of 4,200. Its analysts team, led by Marko Kolanovic, the bank’s chief global market strategist, sees a struggling consumer with depleted savings, a potential recession and geopolitical uncertainty that could push up commodity prices, like oil, and push down global growth.The year ahead will be “another challenging year for market participants,” Kolanovic said. (Most strategists are even more downbeat on Europe, where recession fears are more acute. On the flip side, equities in Asia could show another year of solid growth, especially in India and Japan, Wall Street analysts say.)Lee Ferridge, the head of multi-asset strategy for North America at State Street Global Markets, is more optimistic about the American consumer, but points to a different challenge for investors. “If I’m right, the economy stays stronger. But then that’s a double-edged sword for equities,” he said. The prospect of robust consumer and business spending poses an inflation risk that could force the Fed to hold rates higher for longer, and even pause cuts, he said. “That’s going to be a headwind for equities.”“I wouldn’t be surprised to see a fairly flat year next year,” he added. “If we are up, it’s going to be the Magnificent Seven that are the drivers again.”The wild card: politics and the electionsPresidential elections are not rally killers, according to market analysis by LPL Financial that looks at the past 71 years. In that period, the S&P has risen, on average, by 7 percent during U.S. presidential election years. (The market tends to do even better in a re-election year, the financial advice firm notes.)Even with some uncommon questions swirling over next year’s contest — Will a mountain of legal troubles derail the Republican front-runner, Donald Trump? Will President Biden’s sagging polling ratings open the door for a strong third-party challenger? Will the election result be disputed, causing a constitutional crisis? — that’s unlikely to add much volatility to the markets, Wall Street pros say.“The election will not be a story in the stock market, up until November 2024, for the simple reason that the stock market will not know who’s going to win the election until November 2024,” Bahnsen said.His advice: Don’t even try to game out the election’s impact on the markets. More

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      Kevin McCarthy’s Business Ties Complicate His Rise to Power

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      To land the House speaker position, the California Republican will have to win over opponents who question his ties to Silicon Valley and his commitment to right wing causes.The House, divided.Michael Reynolds/EPA, via ShutterstockKevin McCarthy, Inc.Representative Kevin McCarthy, Republican of California, is still working on landing the House speaker gig after six failed attempts. It’s the first such House floor showdown in a century, and business is at the heart of his woes.Mr. McCarthy’s critics say he’s too friendly with Big Tech. The ultraconservatives who have stymied his rise to power list a number of big objections with Mr. McCarthy. They say that he isn’t sufficiently committed to right-wing causes and that he hasn’t pushed back enough against perceived anti-conservative bias on social media. Yet the would-be speaker published a policy proposal over the summer to “Stop the Bias and Check Big Tech” if Republicans took control of the House.Mr. McCarthy’s messaging has not convinced hard-line party members. His hot-and-cold ties to Silicon Valley haven’t helped his standing either. Jeff Miller, a political adviser to Mr. McCarthy, also represents Apple and Amazon, and two former staff members are now Big Tech lobbyists. Meanwhile, Mr. McCarthy has benefited from tens of thousands of dollars in donations from tech companies and executives.The Republican leader has also alienated onetime corporate allies. Lobbyists once bet big on Mr. McCarthy, but relations have soured somewhat after he embraced former President Donald Trump’s antagonistic approach to corporations with perceived ties to the left.The Chamber of Commerce endorsed 23 Democrats for the House in 2020 and 15 won. That put the speakership out of reach for Mr. McCarthy at that time and he’s reportedly been sore since. The Republican pushed for Suzanne Clark, the Chamber’s C.E.O., to be removed but the organization was unmoved, and issued a statement in support of her.Even before Mr. McCarthy’s failure this week, lobbyists were giving up on him and Washington insiders — including Paul Ryan, the former Republican House speaker now at the executive advisory firm Teneo — were telling executives to stay out of the political fray.Meanwhile, the business of the government is stuck. Until Republicans resolve their internal conflicts, the House is at a standstill. Members have not been sworn in, administrative tasks and constituent services have been delayed and legislative work is on the back burner. Mr. McCarthy and his allies held talks with the holdouts last night to find a resolution. Democrats could step in to help (members of both parties have apparently discussed it), but that doesn’t appear to be on the table right now.Mr. McCarthy has vowed to continue for as long as it takes. In 1923, it took nine ballots to elect a speaker. The House is scheduled to meet again at noon.HERE’S WHAT’S HAPPENING The Justice Department moves to seize Robinhood stock tied to Sam Bankman-Fried. Federal prosecutors argued on Wednesday that the $465 million worth of shares in the online brokerage weren’t part of the FTX bankruptcy estate. Bankman-Fried bought the shares through an investment vehicle with money borrowed from Alameda Research, FTX’s trading affiliate.Walgreens will sell abortion pills. The pharmacy giant said it would dispense mifepristone, becoming the first national chain to do so after the F.D.A. announced new rules for dispensing the drug. CVS and Rite Aid said they were still reviewing the agency’s new policy.China defends its handling of the Covid outbreak. Facing criticism from the World Health Organization and President Biden over the accuracy of its coronavirus tally, Beijing fired back on Thursday, saying the situation was “controllable.” It also plans to reopen its border with Hong Kong on Sunday after a three-year closure.The man behind the college admissions scandal is sentenced. Rick Singer, whom prosecutors accused of orchestrating a $25 million cheating scheme that involved actors, business executives, doctors and more, must serve three and a half years in prison. Singer, who had become an informant, received the longest sentence of anyone tied to the scandal.CES kicks off today. Enormous crowds are expected to return to the tech trade show in Las Vegas this year, after the pandemic clamped down on in-person attendance. Expect plenty of announcements about new televisions, smart-home gadgets, electric cars and more.The bleeding continues at Big Tech Amazon said on Wednesday that it would drastically expand its planned layoffs to a staggering 18,000 jobs as it seeks to rein in costs. Coupled with Salesforce’s plans to lay off about 8,000 employees, it’s the latest sign that tech giants are still grappling with the consequences of overhiring during the pandemic boom.Amazon’s cuts amount to around 6 percent of its corporate work force and will be focused on human resources and what the e-commerce giant calls its Stores division: its main online site, its field operations and warehouses, its physical stores and other consumer teams. (Hourly warehouse workers aren’t part of the tally.) That’s up from the roughly 10,000 the company had been weighing earlier.Salesforce is also laying off 10 percent of its employees and cutting back on office space. The move comes after a series of shake-ups at the business software giant, including the announced departures of Bret Taylor, its co-C.E.O. (reportedly after strains in his relationship with Marc Benioff, the company’s co-founder) and Stewart Butterfield, the C.E.O. of Slack, the messaging app Salesforce bought for nearly $28 billion.It’s a notable retrenchment for Salesforce, whose reputation over the past decade has become one of ever-growing ambition: The company is the largest private employer in San Francisco, and its flagship office tower is the city’s tallest.Both rounds of layoffs arose out of overexpansion. Amazon more than doubled its work force during the pandemic, to 1.5 million, as it became an indispensable seller to locked-down households. Salesforce nearly doubled its head count over the past three years, to 80,000 in October.Those hiring sprees have since run into a slowing global economy, with Amazon having warned in the fall that it could see its worst growth rate since 2001. “We hired too many people leading into this economic downturn we’re now facing, and I take responsibility for that,” Benioff wrote in a letter to employees.Amazon and Salesforce aren’t alone: Meta recently laid off 13 percent of its work force, while Snap and Twitter have also resorted to huge job cuts. Overall, the tech industry laid off over 153,000 workers last year, according to Layoffs.fyi. Things may not get better this year, with analysts cautioning that tech companies’ customers may further clamp down on spending, potentially leading to yet more cost cuts.“The parallels with Russia and Ukraine are hard to ignore. We must not make the same mistakes with Xi Jinping that we did with Vladimir Putin.” — Anders Fogh Rasmussen, a former secretary general of NATO, urged a robust and unified response to deter China from attacking Taiwan. His comments, made during a visit to Taipei, highlighted worries in Europe over China’s growing assertiveness in Asia.The Fed’s big challenge: exuberant marketsInvestors got the post-Christmas “Santa Claus rally” they were hoping for, a buying spree that was fueled in part by slumping energy prices. But the big cloud hanging over markets remains: the prospect that central banks will be emboldened to tame inflation with more interest rate increases.Fed officials gave investors an unambiguous warning on Wednesday: Don’t start pricing in a dovish pivot anytime soon. Many on Wall Street are banking on the U.S. central bank to end its policy of jumbo rate increases in the first half of 2023, and to begin cutting by year-end.But the Fed sees any pivot prediction as misguided, warning that such thinking could complicate its efforts to bring prices under control. Minutes from a December Fed meeting released on Wednesday, did not mince its words. “No participants anticipated that it would be appropriate” to cut rates.As the Times’s Jeanna Smialek reported, policymakers are concerned that markets might misinterpret any decision to slow the pace of rate moves in the near term as a sign that the Fed believed it was making enough progress in bringing inflation closer to its 2 percent target. (The I.M.F. has also weighed in, saying that it doesn’t believe the U.S. has “turned the corner on inflation yet” and that the Fed should “stay the course.”)The markets still don’t seem to be getting the message. “Right now data signals are mixed — like an ink blot, investors can see what they want,” Elsa Lignos, RBC Capital Market’s global head of FX Strategy, said in a note to clients this morning. She pointed out that manufacturing prices were in decline, but that job vacancies remained elevated, suggesting wages could continue creeping higher.A late-afternoon surge on Wednesday helped the S&P 500 and Nasdaq close higher. Between the Dec. 27 open and Wednesday’s close, the S&P 500 rose 0.8 percent, capping off the seventh consecutive annual Santa rally, measured by the stock market’s performance over the seven trading days that follow Christmas. The most bullish on Wall Street see such rallies as a sign that investors will keep buying well into the new year.Investors and Fed officials will be closely watching Friday’s jobs report. The Fed is concerned that the labor market is still too tight, belying the recent headline-grabbing layoffs at tech giants. A jobs report showing big gains in wages and hiring could force the Fed to remain locked in to its “higher for longer” rates policy, adding to additional market volatility.THE SPEED READ DealsShares in GE HealthCare Technologies rose 8 percent in their debut on Wednesday, after being spun off from General Electric. (Bloomberg)Western Digital has reportedly resumed talks to buy Kioxia, a Japanese memory chip maker. (Bloomberg)A unit of Tokyo Gas is said to be in advanced talks to buy the U.S. natural gas producer Rockcliff Energy for about $4.6 billion. (Reuters)Fanatics reportedly plans to divest its 60 percent stake in Candy Digital, a sports N.F.T. company. (CNBC)PolicyEuropean regulators fined Meta 390 million euros after finding it had illegally forced users to effectively accept personalized ads. (NYT)The S.E.C. has objected to Binance.US’s $1 billion bid to purchase the bankrupt crypto lender Voyager Digital. (Reuters)Silvergate, a bank, was forced to sell assets at a steep loss to cover $8.1 billion in customer withdrawals after the collapse in November of FTX. (WSJ)Best of the restA self-described Tesla fan filed a Tesla trademark for a boat and jet without the company’s knowledge. (Bloomberg)Amazon, SiriusXM and Spotify are cutting back on their spending on new podcasts. (Bloomberg)The stars of the 1968 film “Romeo and Juliet” sued the movie’s distributor, Paramount, for $500 million over being made to film a nude scene while they were teens. (NYT)A Princeton student said he had created a program to detect whether an essay was written by the A.I. chatbot ChatGPT. Meanwhile, New York City’s education department banned the use of ChatGPT on some city devices and internet networks. (Insider, Chalkbeat New York)We’d like your feedback! Please email thoughts and suggestions to dealbook@nytimes.com. More

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      Investors Bet on Midterm Bounce for Stock Market

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      Stocks were steady on Tuesday morning as voters in the United States headed to the polls and investors bet on Republicans flipping at least one chamber of Congress in the midterm elections.Futures on the S&P 500 stock index rose slightly on Tuesday morning in premarket trading. On Monday, the index recorded a 1 percent gain.Many analysts and investors expect the midterms to provide a tailwind for the stock market if the result is gridlocked government, in part because it implies a lower likelihood of major legislative changes that could affect company valuations.Analysts at Morgan Stanley said on Monday that Republicans taking control of the House or Senate could restrict the spending plans of President Biden and Democrats, potentially lowering Treasury yields and raising stock prices.“The markets prefer a more divided government,” said Eric P. Beiley, the executive managing director of Steward Partners, a wealth management firm. “If the Democrats hold I think you could see markets decline,” he added.But the data on past market performance around the midterms isn’t always so clear.According to Sam Stovall, the chief investment strategist at CFRA, a research firm, the S&P 500 has risen by an average of 0.6 percent the day after midterm results are announced, for data going back to 1970. The largest recent jump came in 2018, when the index rose more than 2 percent after Democrats flipped the House during President Donald J. Trump’s term.However, analysts at the research and indexing firm MSCI looked at the performance of U.S. stocks in the three months before and after midterms since 1978, and found that investors seemed to prefer the status quo — whatever it was at the time — versus a change in control.“The status quo generally translates into continued stability of the policy and economic road map with the reigning political party maintaining similar levels of control in terms of achieving its mandate,” the MSCI analysts wrote.Taking a longer view, Megan Horneman, the chief investment officer at Verdence Capital Advisors, noted that of the potential outcomes after the midterms — Democrats retain control, Republicans sweep or control of the House and Senate is split — the average annual return of the S&P 500 in each case was over 10 percent, going back to 1929.“The main thing to remember is that the markets tend to rally postelection only because markets don’t like uncertainty,” said Patrick Fruzzetti, a managing director at Rose Advisors. For many investors, it could be that the clarity they are seeking is simply the result, whatever it is. Beyond the potential shifts in the political balance of power, investors are grappling with the effects of high inflation, rising interest rates and recession worries.And there is another potential outcome in the 2022 midterms that officials are increasingly worried about; that some of the results could be contested. But in 2020 when the Trump campaign made false claims of corrupted elections and filed lawsuits, the S&P 500 rose more than 11 percent from when the results were announced through the end of the year. More