(Reuters) – U.S. stock futures held onto gains on Tuesday after media projections showed the Democrats winning control of the House of Representatives in U.S. midterm congressional elections.
With President Donald Trump’s Republican party holding onto their majority in the Senate, according to CNN, NBC and ABC News, the results were in line with expectations on Wall Street that Washington was set for gridlock.
A House controlled by the Democrats will hamper Trump’s business-friendly agenda and could lead to uncertainty about his administration at a time when investors are already worried that a decade-old bull market may be ending.
S&P 500 e-mini futures had earlier rose 0.4 percent as initial results showed Democrats struggling in races for the House, but those gains were pared to 0.25 percent after Fox News and NBC News projected that Democrats would take control of the House..
Higher S&P 500 futures imply traders to expect Wall Street to open with a gain in the following session.
“Right now, it looks like the Democrats will take the House,” said Quincy Krosby, chief market strategist at Prudential Financial in Newark, New Jersey. “Clearly, the futures market was far more buoyant when it looked as if the Democrats would have a much more difficult time.”
Stock futures remained in positive territory on expectations that the Democrats’ majority in the House would prove less than some had expected, said Stephen Innes, head of trading for Asia at OANDA brokerage in Singapore. His firm was trading e-mini futures as the election results came in.
“Investors are breathing a bit of relief it’s not a blue tsunami,” said Innes, referring to the color associated with the Democratic party.
Following a steep selloff in October, the S&P 500 remains down more than 5 percent from its record high, with many investors worried the market could fall further as inflation gathers steam and the Federal Reserve raises interest rates.
Control of the House will let Democrats put Trump’s administration under more intense scrutiny, potentially making Wall Street nervous.
Gridlock in Washington will all but eliminate the potential for more tax cuts, which Trump has called for and which many on Wall Street would like. Sweeping corporate tax cuts passed by the Republicans last year have supercharged earnings growth.
In Tuesday’s trading session, the Dow Jones Industrial Average rose 0.68 percent to end at 25,635.01 points, while the S&P 500 gained 0.63 percent to 2,755.45.
The Nasdaq Composite added 0.64 percent to 7,375.96.
Additional reporting by Daniel Bases, Sinead Carew, April Joyner in New York and Sruthi Shankar in Bengaluru; Editing by Simon Cameron-Moore