STORY: Wall Street ended sharply lower on Wednesday as a better-than-expected showing by Democrats in the midterm elections diminished the prospect of government gridlock - a scenario favored by investors, who had anticipated a red wave.
The Dow and S&P 500 each fell about 2%, while the Nasdaq dropped about 2.5%.
Rod von Lipsey, managing director at UBS Private Wealth Management, explains why fewer Republican gains in Tuesday's elections led to Wednesday's stock market losses.
"Yesterday's market activity was all about the expectation of a red wave in the U.S. elections. And today the market reaction is giving much of that back, if not all of it back, with the realization that the election right now in the Senate is too close to call and that the pickups for the Republican Party in the House has not been as dramatic as expected. And so the market yesterday priced in this fact that there would be Republican control and now we're looking at just pure gridlock, maybe being the status quo. And, most importantly, there had been some concern by market participants that there would be a rollback or whether it would be a rollback in some regulations, in taxes and fiscal policy and things like that. So today is just an unwind of yesterday's enthusiasm or expectation of a red wave. It just didn't happen."
With some of the election outcomes still uncertain, investors were turning their attention to October inflation data due out on Thursday, which could shed more light on whether the Fed might soften its aggressive stance on interest rate hikes.
Clean energy shares, which typically benefit under a Democratic leadership, rose on Wednesday, with the Invesco Solar ETF up for the day.
Shares of Walt Disney tumbled after the entertainment giant reported more losses from its push into streaming video.
Shares of Tesla dropped to a two-year low after top boss Elon Musk disclosed that he sold nearly $4 billion worth of shares days after closing his $44 billion deal to buy Twitter.
On the plus side were shares of Wendy's, after the hamburger chain reported quarterly sales and profit that beat analysts' estimates.
And shares of Meta Platforms jumped after the Facebook owner said it was cutting 13% of its workforce, or more than 11,000 employees, in one of the biggest tech layoffs this year.