NEW YORK — Stocks rallied Wednesday as investors were relieved to see that the U.S. midterm elections went largely as they expected they would. Big-name technology and consumer and health care companies soared as the Standard & Poor’s 500 index closed at its highest in four weeks.
Democrats won control of the House of Representatives while Republicans kept a majority in the Senate, as most polls had suggested. It’s not clear how the divided Congress will work with Republican President Trump, but if the possibilities for compromise and big agenda items seem limited, Wall Street is fine with that because it means politics is that much less likely to crowd out the performance of the strong U.S. economy.
“The market likes when what it expects to happen happens,” said JJ Kinahan, chief markets strategist for TD Ameritrade. “We haven’t had that happen in a little while, when you think about major events like Brexit or the presidential election.”
The S&P 500 index climbed 58.44 points, or 2.1 percent, to 2,813.89. The index has risen six out of the last seven days to recover most of the losses it suffered in October. The Dow Jones industrial average rose 545.29 points, or 2.1 percent, o 26,180.30. The Nasdaq composite climbed 194.79 points, or 2.6 percent, to 7,570.75. The Russell 2000 index of smaller-company stocks added 26.06 points, or 1.7 percent, to 1,582.16. Three-fourths of the stocks on the New York Stock Exchange traded higher.
Historically markets have performed well after midterm elections and with split control of Congress.
High-growth stocks took an especially brutal beating during the market’s drop last month. Quincy Krosby, chief market strategist at Prudential Financial, said it will be worth watching to see if investors are willing to buy those stocks again or if they continue to prefer slower-growing, more “defensive” companies like utilities and household goods makers.
On Wednesday investors bet on growth. Amazon jumped 6.9 percent to $1,755.49 and Microsoft gained 3.9 percent to $111.96, while Google’s parent company, Alphabet, picked up 3.6 percent to $1,108.24.
Steady, “defensive” stocks lagged the rest of the stock market. Those companies, which include utilities and household goods makers, tend to do well when stocks are in turmoil, but they’re less appealing when investors are betting on economic growth.
Industrial companies made strong gains, but they didn’t do as well as the rest of the market. While some investors hope that Trump and Congressional leadership will pass an infrastructure stimulus bill, they’ve had those hopes dashed more than once since he took office.
It’s not clear how the elections will affect the Trump policy Wall Street might be most concerned about: the trade dispute with China. Trump has imposed taxes of up to 25 percent on $250 billion of Chinese imports and threatened additional tariffs on top of those. Beijing has responded with tariffs on $110 billion of American goods.
It’s more likely that government will play less of a role in spurring economic growth in 2019 and 2020. As a result, the health of the global economy, interest rates set by the Federal Reserve, and spending by U.S. consumers and companies will have a bigger impact on determining the pace of growth.
The Federal Reserve is also meeting Wednesday and Thursday. It’s not expected to raise interest rates this month, but investors believe it will do so in December.
The U.S. markets swooned in October, knocking the S&P 500 down nearly 7 percent, as investors worried about rising interest rates and the U.S.-China trade dispute. The S&P 500 is up 3.8 percent so far in November.
October is historically a rough month for stocks, though markets usually rise after midterm elections regardless of how the political landscape may change because Wall Street is glad to have more certainty.
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