American stocks touched new highs as Wall Street cheered the Republican victory in the US mid-term elections. Currency traders also said that the dollar had left other currencies “green with envy” as it gained ground against rivals.
Wall Street’s delight came despite a report from the US Congressional Budget Office which suggested that the President’s 2015 budget would have made the US economy “larger in each year of the 2015–2024 period than it would be under current law”.
It continued: “Almost all of that estimated effect stems from the President’s proposal to change immigration laws.”
Republicans have been bitterly hostile to immigration reform, and their victory in the battle for control of the Senate, as well as the strengthening of the grip on the House of Representatives, will frustrate President’s Obama in has final two years of office.
But Wall Street, as opposed to the wider US economy, has thrived under a coalition of a Democrat president and a Republican-controlled Congress. Sam Stovall, of S&P Capital IQ, has noted that markets perform best with a unified Congress run by the opposite party to the president, and best of all when that president is a Democrat.
The Dow jumped to about 70 points above its previous intraday high of 17,410.65 as US markets opened, before easing back a little.
The rise was sparked by hopes that the Republican victory could lead to new measures to help the bombed out energy sector, which has been suffering from the oil price’s pronounced weakness, with crude having slumped to three-year lows. The measures could include the approval of new oil and gas pipelines, as well as reforms to crude and natural gas export laws.
The S&P energy index is the only one of 10 primary S&P 500 sectors to have lost ground during this year, but it posted a 1.6 per cent rise on the back of the mid-term results.
The upbeat sentiment was also helped by better than expected data from US private employers, who added 230,000 jobs in October, the most since June, according to the ADP National Employment report. The data raised hopes that Friday’s closely watched payroll report may provide similarly upbeat figures. On the flipside, the pace of growth in the US services sector eased by more than expected last month. The Institute for Supply Management’s services index showed a fall for the second month, hitting its lowest level since June.
The tech-heavy Nasdaq index also failed to reflect the exuberance shown by other markets, due to some weak earnings in the sector.
Watching with a jaundiced eye from London, Panmure Gordon’s chief market commentator, David Buik, said: “Despite the fact that the Clinton administration is the only US government ever to slash the budget deficit in recent times, markets are still of the opinion, erroneously so, that a Republican administration is much more pro-business, though there is little evidence to prove it.
“Republicans are perceived to be pro-small government and positive about the defence industry,” he added. “They like to cut taxes at the expense of public expenditure, including conceivably healthcare, which could be a shot in the arm for the drug sector. The energy sector is more likely to thrive under majority rule in the Senate as well as Congress.”Reuse content