Stock Market Reaction Mixed In Aftermath Of Midterm Elections

A monitor displays the day's final numbers on the floor on the New York Stock Exchange (NYSE), October 26, 2018 in New York City. The Dow Jones Industrial average was down nearly another 300 points at the close on Friday. Disappointing earnings numbers from key technology companies, including Amazon and Alphabet, were driving forces for the markets' slide.
Drew Angerer / Getty Images

Global financial markets are noticeably higher across the board in the opening hours of Wednesday, but the results of the 2018 midterm elections which saw the Democrats take control of the House of Representatives seemed to have a minor impact at best regarding financial sentiment, at least in the immediate aftermath, according to reports from Business Insider.

Projections about the 2018 midterms had long predicted the Democrats winning the House with the Republicans retaining the Senate, with the results reflecting exactly that when the Democrats getting to the 218 seat mark just after 3:00 a.m. and securing their majority.

On Wednesday morning, Paul Donovan, the chief economist at UBS Wealth Management, offered his reaction to what the results may mean by saying, “Welcome to gridlock. Trump may now fall back on policy areas that do not require Congress, like trade.”

Outside of a few upsets in individual races, the results meeting expectations have led to the markets to remain on their usual course. As UBS Wealth management said in a statement by its chief investment office, “As this outcome was widely anticipated, we see little immediate market impact.”

There was some impact in Asian markets, which saw most of the major indexes fall in what could be attributed to fears that the rising strength of Democrats may cause President Donald Trump to react by taking an even more hardline approach to his trade policies, in particular his trade war with China. China’s financial index, the Shanghai Composite, suffered a 0.6 percent drop at its close.

Donovan’s viewpoint on the market response is based on his colleagues at the chief investment office’s research, which also notes that the “increase in gridlock is likely, making it difficult to pass legislation.”

The statement went on to say, “Without common ground on areas to cut spending, the budget deficit is likely to remain higher than usual, keeping upward pressure on long-term government bond yields.”

While the market remains consistent, the expected gridlock has had an impact on the U.S. dollar, which saw a drop in value of 0.6 percent in comparison to its peers, according to the dollar index.

Jameel Ahmed of FXTM, an international online stockbroker, wrote in an email, “The USD has edged gradually lower against many of its counterparts over the course of this week, with this related to expectations that the Democrats winning some influence could provide some legislative resistance towards Trump further pushing forward pro-America policies.”