By US stock index futures are sharply lower today, November 4, as investors react to the midterm election results, which delivered a decisive win for Democrats. Dow Jones futures have dropped 440 points, while S&P 500 futures are down 102 points and Nasdaq 100 futures have fallen 660 points. Could this be the last shakeout before the next big rally?
US stock index futures tumble as Democrats win
The US stock market is in a strong downward momentum today, continuing the sell-off that has been going on in the past few weeks.
This sell-off accelerated after Democrats won the midterm elections by a large margin in a rebuke to President Donald Trump, who implemented tariffs and started an unpopular war with Iran.
Democrats won in areas where Republicans have thrived for years, including Kansas and Texas. For example, Adam Hamilton flipped the Kansas seat, while James Talarico became the first Democrat to win the Texas election.
The election was a referendum on Trump, a president whose approval ratings have dropped to the worst level ever. Most voters blamed his administration for pushing gasoline and diesel prices higher, with the latter reaching an all-time high. They also blamed him for corruption and the higher health insurance costs.
The Democratic sweep means that investors are bracing for some changes in Washington that could impact the stock market. For example, some Democrats have advocated against data centers that are being built across the country. They also favor ending some of the tax breaks that Trump implemented.
History shows US stocks do well after midterms
US stocks were already in a downward trend ahead of the US midterm elections, with the Nasdaq 100 Index in a technical correction. The S&P 500 and Dow Jones were down by over 5% from their recent peaks.
However, history shows that US stocks do well regardless of who is in the White House or controls Congress. The S&P 500 Index jumped by 31.5% in 2019 after Democrats won, and by 26% after Republicans won.
The same happens in presidential elections, where US stocks rally regardless of who is in the White House. Stocks jumped after Trump won in 2016 and after Joe Biden won. One reason is that American companies tend to do well regardless of the day’s politics.
S&P 500 Index technical analysis
S&P 500 Index chart | Source: TradingView
The daily chart shows that the S&P 500 Index has been in a strong sell-off in the past few weeks. This sell-off started after it formed a double-top pattern at 7,863 and a neckline at 7,579, its lowest level on September 16.
The index has moved below the 23.6% Fibonacci Retracement level. It has dropped below the 50-day Exponential Moving Average (EMA) and the Supertrend indicator. The Relative Strength Index (RSI) has continued falling.
Therefore, the index will likely continue falling, potentially to the key support level of 7,319, the 38.2% retracement level. The index will likely bounce back as investors start buying the dip.
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