Stock Futures Slip as Mixed Midterm Verdict Leaves House and Senate Control in Doubt

Stock futures drifted lower on Wednesday morning, pointing to a softer open after a three-day run of gains. Futures tied to the S&P 500 slipped 0.3% and Dow futures eased 0.4%. The Nasdaq Composite was down as much as 0.3% in premarket trading. The cause was an election result that did not match what investors had bet on.

On Tuesday, stocks closed higher for a third straight session, though the major indexes wavered through the day before settling. Much of that optimism rested on an expectation that Republicans would make large gains in the midterms and produce gridlock in Washington. That red wave did not materialize. Democrats flipped a pivotal Senate seat in Pennsylvania, where John Fetterman defeated Mehmet Oz. As of Wednesday morning, control of both the House and the Senate was still undecided.

The final tally could take days or even weeks, but Wall Street professionals were not forecasting a dramatic market reaction. Barry Gilbert, an asset allocation strategist at LPL Financial, pointed to history in a note to clients. The year after a midterm election tends to produce the strongest equity returns, according to LPL. Since 1951, he wrote, a Democratic president paired with a Republican or split Congress, the two likeliest outcomes this time, has coincided with an average S&P 500 return of more than 17%, against an overall average of just over 12%.

Gilbert said LPL expects the election to tilt the market positive, partly because it will be over. He added that the policy impact on markets is likely to be small, and that investors will stay focused on central bank policy and inflation.

That puts Thursday morning's inflation report at the center of attention. Economists surveyed by Bloomberg expect headline consumer prices to have risen at an annual rate of 7.9% in October, down from 8.2% the month before. Even if prices show signs of moderating, core CPI remains well above the level the Federal Reserve is comfortable with. Rebecca Felton, senior market strategist at RiverFront Investment Group, told Yahoo Finance Live on Tuesday that inflation is still far above the Fed's 2% target. She does not expect the central bank to ease up in the near term, and she thinks rates and inflationary pressures will both stay higher for longer.

Corporate news added to the cautious tone. Meta Platforms said it will cut more than 11,000 jobs, about 13% of its staff, as it restructures to cope with a slumping digital advertising market. Disney reported weaker-than-expected fourth-quarter earnings on Tuesday: wider losses in its streaming business outweighed strong results at its theme parks.

Cryptocurrencies were under pressure as investors weighed whether Binance would acquire its rival FTX. Bitcoin fell more than 10% to $17,748.44, near its lowest level in two years, according to CoinDesk.

Elsewhere, the yield on the 10-year Treasury note rose to about 4.1%. Brent crude, the international benchmark, fell to $93.64 a barrel, its third straight daily loss, and the dollar erased its earlier losses. The CPI release on Thursday is the next test of whether inflation is cooling and how long rates stay elevated.