Speed Reads

Economy in the red?

Market sees slight jump ahead of midterm elections

Stocks have gone up in anticipation of the midterm elections, reports CNBC. The Dow Jones Industrial Average increased by 426 points or 1.31 percent on Monday, while the S&P 500 went up by 0.88 percent, and the Nasdaq Composite went up by 0.78 percent. 

These increases come just a week after the stocks dropped due to Federal Reserve's 0.75 percent interest rate hike. Investors are betting on a Republican victory in at least one of the congressional houses, an outcome that polls seem to also suggest. A divided government usually leads to political gridlock, "which the market usually loves," writes CNN Business.

Historically, midterm elections have brought growth to the market no matter which party wins, Reuters writes. However, certain stocks will likely benefit from Republican leadership including defense contractors, energy stocks, and security stocks like private prisons. Healthcare stocks could also see a rise, due to Republicans potentially removing measures to bring down prescription drug costs. 

While it can improve the market, political gridlock also has the potential to hurt it. With continued recession fears, a split Congress may actually slow down recovery. "This election outcome is less about what might get done versus what might not get done to help the economy during a downturn," explained Rob Dent, U.S. senior economist at Nomura Securities International.

"We're worried about divided government leading to brinkmanship about the debt limit and the potential for government shutdowns."