(The West Australian) - US stock indexes have fallen as uncertainty around the outcome of a tightly contested midterm election weighed on the mood, with investor focus shifting to Thursday's inflation data for clues on the path of future interest rate hikes.
Republicans made modest gains and were favoured to win control of the House of Representatives, though control of the US Senate may once again be decided in December 6 runoff elections in Georgia. Many of the most competitive races were too close to call.
"There is a likelihood that we have divided government... the general rule of thumb as far as markets are concerned is gridlock is good - fewer policy changes and less risk to individual sectors," B Riley Financial's chief market strategist Art Hogan said on Wednesday.
A split government, with a Democrat in the White House, has historically been favourable for stock markets as it paves the way for partisan standoffs on contentious policy changes such as the federal debt limit.
The S&P 500 has posted a gain in every 12-month period after the midterm vote since World War II, according to Deutsche Bank.
Though 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.
With the election outcome still uncertain, investors were focusing on Thursday's inflation data, which is expected to put the limelight on the Federal Reserve's tightening cycle.
"CPI is one of the more important inputs in terms of the inflation environment. You'd be hard pressed to find many investors that want to make a big bet in front of (the report)," said Hogan.
Traders currently see a 57 per cent chance of that the Fed would raise rates by 50 basis points in December to 4.25 per cent-4.50 per cent, according to CME Fedwatch tool.
Wall Street's main indexes have sold off sharply this year, with the benchmark S&P 500 down 20.3 per cent year-to-date on worries that the aggressive rate hikes could cause a recession.
In early trading on Wednesday, the Dow Jones Industrial Average was down 163.81 points, or 0.49 per cent, at 32,997.02, the S&P 500 was down 18.93 points, or 0.49 per cent, at 3,809.18, and the Nasdaq Composite was down 80.39 points, or 0.76 per cent, at 10,535.81.
Nine of the 11 major S&P sectors declined in early trading, led by 1.7 per cent slide in energy and 1.1 per cent in technology.
Meta Platforms Inc climbed eight per cent as the Facebook-parent said it would let go of 13 per cent of its workforce, or more than 11,000 employees, in one of the biggest tech lay-offs this year.
Kroger Co gained four per cent after the US federal court denied requests to temporarily block Albertsons Companies Inc's $US4 billion ($A6.2 billion) dividend payment to shareholders. Separately, Evercore upgraded the grocer's stock to "outperform" from "in line".
Walt Disney Co slumped 10.7 per cent as the entertainment giant racked up more losses from its push into streaming video.
Declining issues outnumbered advancers for a 2.09-to-1 ratio on the NYSE and for a 2.09-to-1 ratio on the Nasdaq.
The S&P index recorded five new 52-week highs and 13 new lows, while the Nasdaq recorded 22 new highs and 209 new lows.
By Medha Singh and Amruta Khandekar
