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Dow rallies 500 points as investors anticipate midterm election results

Dow rallies 500 points as investors anticipate midterm election results

Stocks rose Tuesday as investors awaited the results of the US midterm elections, which could impact future levels of government spending and regulation.

The Dow Jones Industrial Average gained 522 points, or 1.6%, on track for its third straight up day. The S&P 500 rose 1.2%. The Nasdaq Composite was 1.5% higher.

The moves come after a day when all major indexes notched a second straight positive session. The Dow Jones Industrial Average closed higher by 423.78 points, or 1.31%. Meanwhile, the S&P 500 gained 0.96%, and the Nasdaq Composite rose 0.85%.

Market participants are expecting Republicans to take back the House of Representatives and possibly win the Senate as well when results start rolling in Tuesday night. Investors tend to like the notion of gridlock in Washington with a divided Congress and President because it will limit government spending, new taxes and regulations.

“If we have a gridlock, that will probably be the best thing that could happen for the market. The markets usually do very well when that happens,” said The Wealth Alliance’s Seth Cohan.

Overall, history shows markets tend to gain into year-end and up to 12 months following midterm elections as investors are relieved to get some clarity on future policy. One wild card would be if multiple races that could determine control of Congress are too close to call, an outcome that could weigh on markets Wednesday.

“The financial market reaction to a Republican win should be muted, as the House outcome is already widely expected, and the Senate outcome makes less of a difference to policy outcomes if Republicans control the House,” Goldman Sachs’ Jan Hatzius wrote in a Monday note.

“A surprise Democratic win in the House and Senate would likely weigh on equities, as market participants might expect additional corporate tax increases,” Hatzius added.

Shares of Lyft fell nearly 20% while Take-Two Interactive and Tripadvisor slumped more than 18% each after reporting disappointing quarterly results.

Meanwhile, shares of Kohl’s jumped more than 7% after the department store chain announced the departure of its CEO next month.

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