S&P 500 falters on unknown midterms as crypto craters

Stocks and crypto are down as US midterms, exchange collapses and inflation figures panic markets.

Crypto markets cratered while the S&P 500 plunged during Wednesday’s trading as the “red wave” in the US midterms did not take place.

The S&P 500 shed 2.08%, led by Disney which fell by 13.2% as the entertainment giant missed market expectations.

The Dow Jones was also down 1.95% while the more tech-heavy Nasdaq Composite slid 2.48%.

It is now widely assumed the Aussie markets will fall on the open, although stronger numbers are coming out of Europe, albeit markets are down.

At the same time, stats released by bitstamp.net show Bitcoin is down 15% at the time of writing.

Why does the market care about election results?

The midterms were widely expected to be a landslide.

The red wave of Republicans retaking the House and the Senate was supposed to provide the markets with some stability.

“So-called political gridlock is seen as positive for the share market as it could crimp White House plans for more government spending,” CommSec chief economist Craig James said in a note.

The link between stock market performance and midterm elections is well-documented.

In 17 of the 19 midterms since 1946, the market performed better in the 6 months following an election than it did in the 6 months leading up to it.

This is especially true when lawmakers are unable or unwilling to agree on major legislation.

This means substantial laws are either not approved or significantly reduced in scope and impact, said Nigel Green, chief executive of independent financial advisory deVere Group.

“A lack of sweeping legislative changes means there is less uncertainty for businesses.”

What’s going on the crypto space

While the stock market is falling, the news was worse for crypto investors.

The declines occurred after crypto exchange Binance said it was backing out of plans to acquire its rival FTX.

FTT, the utility token of the FTX exchange, is down by more than 40%, following a more than 70% collapse on Tuesday.

This is having a wider impact on the overall market.

What to watch out for next

There’s no rest for investors.

As they focus on midterms and crypto markets, they also have fresh inflation figures coming out tomorrow.

Markets will be looking for a sign that the Fed can pivot away from its aggressive rate hiking cycle.

If the inflation figures remain high, expect further tightening and a fall in the S&P 500.

“Inflation is enemy number 1 for the Fed, and if you see the core consumer price index (CPI) print creep up, I believe the market would have a negative reaction to that,” Allianz Investment Management’s Johan Grahn told CNBC.