NEW YORK (Reuters) – U.S. stocks rose on Tuesday on expectations the congressional elections outcome will be bullish for business, though some warn gridlock could hurt the nation’s ability to recover from a steep recession.
As voters cast their ballots, most polls show Republicans regaining control of the U.S. House of Representatives, while President Barack Obama’s Democrats could be left with a smaller majority in the Senate.
The market’s gains can be attributed to the «euphoria surrounding the likelihood of Republicans’ gains, coupled with the continued price momentum in the stock market,» said Doug Kass, president of Seabreeze Partners in Palm Beach, Florida.
Democrats currently have majorities in both the House and Senate. A divided Congress is typically seen as bullish for stocks as it passing new laws less likely and reduces uncertainty for markets.
«Gridlock has historically been a plus for this market, but I believe it’s different this time,» said Kass.
«The economy faces numerous challenges to growth that all need to be addressed quickly. We have a government divided after tonight, in my view, and this is not a price-earnings expanding event,» he said. Kass said the market’s gains set the stage for investors to sell.
The Dow Jones industrial average (.DJI) rose 76.82 points, or 0.69 percent, to 11,201.44. The Standard & Poor’s 500 (.SPX) added 9.42 points, or 0.80 percent, to 1,193.80. The Nasdaq Composite (.IXIC) rose 24.23 points, or 0.97 percent, to 2,529.07.
The Federal Reserve is expected to announce a program of asset purchases of at least $500 billion to stimulate the economy on Wednesday at the end of a two-day meeting that began on Tuesday. For a special report, see http://link.reuters.com/pyb23q
The U.S. benchmark S&P 500 has advanced almost 14 percent since the start of September on hopes of further Fed action.
The U.S. dollar fell 0.75 percent against a basket of currencies (.DXY). The greenback and the S&P 500 have established a close inverse correlation in recent weeks. Their 30-day correlation stands at -0.84, with -1 being a perfect inverse correlation.
In earnings news, MasterCard Inc (MA.N) jumped nearly 3 percent to $246.08 after the world’s No. 2 credit- and debit-processing network said quarterly profit rose 15 percent.
The CBOE Volatility Index, or VIX (.VIX), Wall Street’s favorite barometer of investors’ fear, slid 1.8 percent after six days of gains. But analysts expect to see swings into the close when rumors of exit poll results start to hit the market.