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US stocks open higher after election yields split Congress

US stocks plunged over two days, with the Dow losing nearly 1,400 points, but seemed set to recover Friday
Drew Angerer (GETTY/AFP)

Wall Street stocks rose Wednesday as investors breathed a sigh of relief at a split decision in midterm election seen as a referendum on Donald Trump's presidency.

Near 1610 GMT, the Dow Jones Industrial Average was up 1.1 percent at 25,926.57.

The broad-based S&P 500 advanced 1.3 percent to 2,792.11 and the tech-rich Nasdaq Composite Index gained 1.8 percent to 7,509.87.

With a handful of races still too close to call, Democrats were on track to capture some 30 - 35 House seats, taking control and providing a check on Trump's policies. 

But Republicans appeared likely to win three to five Senate seats and solidify their control of the upper house following Tuesday night's vote.

Analysts said the market's gains reflected relief that an event viewed as a source of uncertainty had finally passed.

A Democratic sweep of Congress would have been seen as a threat to Trump's agenda and providing momentum to calls for an impeachment investigation, while a Republican sweep would have bolstered the odds for additional tax cuts that could have worsened the US fiscal outlook, analysts said.

A note from Wells Fargo said the bipartisan Congress means the odds of "significant, market-moving legislation are minimal," not threatening the outlook for continued solid economic growth and moderate inflation.

Torsten Slok, chief international economist at Deutsche Bank, said "gridlock" from a split Congress has "historically been bullish for equities and we expect to see the same pattern again."

But Berenberg Capital Economics offered a gloomier prognostication, eyeing "even more Congressional dysfunction -- if that is possible" that could elevate the odds of a government shutdown.

"We expect the highly partisan and polarized next session of Congress with split powers between the two political parties to lead to significant political rancor and theatrics but little meaningful legislation," Berenberg said.

Goldman Sachs said the election would yield no major changes on taxes or trade. Goldman said enactment of bipartisan infrastructure investment "seems unlikely," although other analysts viewed the election outcome as beneficial to that long-stalled initiative.

Goldman said the Democratic win in the House opened the door to potential passage of legislation to limit drug prices, an objective Trump has also emphasized at times. 

Still, shares of drug companies were generally higher Wednesday, suggesting investors still do not see any legislation as significantly denting pharma profits.

Technology shares were another outperformer, with Amazon gaining 4.5 percent, Google parent Alphabet 2.4 percent and Microsoft 3.5 percent.

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