Futures edge lower as race for control over Congress tightens

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(Reuters) – U.S. stock index futures ticked lower on Wednesday as investors kept a close eye on the results from a tightly contested midterm election in expectation of a divided Congress that would make it harder for the passage of drastic policy changes.

Early indications suggested the U.S. Republicans looked set to take control of the House of Representatives, while the Senate results were a toss-up with many of the most competitive races uncalled.

A split government, with a Democrat in the White House, has historically been favorable for stock markets as it paves the way for partisan standoffs on contentious policy changes such as the federal debt limit, which could usher in worries of a U.S. default.

“It’s going to take some time to see who wins… We already have a scenario of gridlock because the Republicans are going to take the House. The market can accept gridlock,” said Quincy Krosby, chief global strategist at LPL Financial (NASDAQ:LPLA) in Charlotte, North Carolina.

“It means that many of the measures from the administration will be thwarted by the opposing part.”

A surprise victory for Democrats could raise concerns about tech-sector regulation as well as budget spending that could add to red-hot inflation, according to market strategists.

Only 13 of the 53 most competitive races, based on a Reuters analysis of the leading nonpartisan forecasters, had been decided so far, raising the prospect that the final outcome may not be known for some time.

Investors have increasingly priced in a Republican win this quarter as stocks including energy and defense – expected to perform well under a Republican sweep – have outperformed clean energy shares that typically benefit under a Democratic leadership.

The S&P 500 has posted a gain in every 12-month period after the midterm vote since World War Two, according to Deutsche Bank (ETR:DBKGn).

GRAPHIC: Post-midterm perfection for U.S. stocks https://graphics.reuters.com/USA-STOCKS/MIDTERMS/gdpzqrdoqvw/chart.png

At 6:21 a.m. ET, Dow e-minis were down 67 points, or 0.2%, S&P 500 e-minis were down 2 points, or 0.05%, and Nasdaq 100 e-minis were up 8.5 points, or 0.08%.

Meanwhile, some market participants expect October U.S. inflation data due on Thursday to be more market-moving.

Holger Schmieding, an economist at Berenberg, does not expect election results to have any impact on U.S. fiscal or monetary policies and believes the Federal Reserve’s actions to curb inflation will continue to dictate markets.

Among individual stocks, Meta Platforms Inc rose 4.3% as the Facebook-parent said it would let go of 13% of its workforce, or more than 11,000 employees, in one of the biggest tech layoffs this year.

Walt Disney (NYSE:DIS) Co slumped 7.8% in premarket trading as the entertainment giant racked up more losses from its push into streaming video.

Tesla (NASDAQ:TSLA) Inc shares rose 1.6% after filings showed Chief Executive Elon Musk has sold $3.95 billion worth of shares in the electric-vehicle maker days after he closed the $44-billion Twitter deal.