Expectation of Republican win lifts Wall Street

By Ryan Vlastelica

NEW YORK (BestGrowthStock) – Stocks closed higher on Tuesday on the expectation the midterm election and a Federal Reserve decision would create a more business-friendly environment, though many traders forecast a selloff in the days ahead.

The S&P 500 index has risen almost 14 percent since September on speculation of Republican congressional gains and new measures by the Federal Reserve to stimulate the economy.

“The market is expecting Republicans to at least take one House, and that’s a big reason why we traded up over the past few months,” said Scott Wren, senior equity strategist at Wells Fargo Advisors in St. Louis.

“There’s a high probability that we’ll see a modest pullback afterward as the euphoria fades.”

Most polls show Republicans regaining control of the House of Representatives, while President Barack Obama’s Democrats could be left with a narrow majority in the Senate.

A divided Congress is typically seen as bullish for stocks as it makes passing new laws harder and lessens uncertainty for business. Healthcare stocks, which were under pressure before the healthcare bill became law in March, climbed in Tuesday’s session. The Morgan Stanley Healthcare Payor index (.HMO: ) was up 2.7 percent. Cigna Corp (CI.N: ) advanced 4.2 percent to $36.85.

Some of the healthcare law’s critics hope Republicans can spearhead attempts to repeal or not fund parts of the law.

Energy stocks were the second best performer among the 10 S&P sectors, rising 1.1 percent. Republicans, traditional supporters of the oil industry, are viewed as less likely to pursue regulations that would hurt profits. A rise of 1.1 percent in oil prices on Tuesday also helped the sector.

The Dow Jones industrial average (.DJI: ) was up 64.10 points, or 0.58 percent, at 11,188.72. The Standard & Poor’s 500 Index (.SPX: ) was up 9.19 points, or 0.78 percent, at 1,193.57. The Nasdaq Composite Index (.IXIC: ) was up 28.68 points, or 1.14 percent, at 2,533.52.

In what could be another positive catalyst for stocks, the Fed is expected to announce a program of asset purchases of at least $500 billion via quantitative easing — in effect printing money to buy bonds and lower borrowing costs. A statement is expected on Wednesday after a two-day meeting by the U.S. central bank.

“I’d sell the market strength into this election result and tomorrow’s quantitative easing,” said Doug Kass, president at Seabreeze Partners in Palm Beach, Florida.

The U.S. dollar fell 0.7 percent against a basket of currencies (.DXY: ). The greenback and the S&P 500 have established a close inverse correlation in recent weeks. Their 30-day correlation stands at -0.84, with -1 being a perfect inverse correlation.

In earnings news, MasterCard Inc (MA.N: ) jumped 2.9 percent to $245.98 after it reported a third-quarter profit (Read more your timing to make a profit.) that beat expectations, but Kellogg Co (K.N: ) fell 2.2 percent to $49.63 after it forecast weaker-than-expected earnings growth in 2011.

The CBOE Volatility Index (.VIX: ), Wall Street’s favorite barometer of investors’ fear, slid 1.2 percent after six days of gains.

Volume was light, with about 6.92 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, below the year-to-date daily average of 8.73 billion.

“The market appears to be drifting into wait-and-see mode, as investors wait for greater clarity about the future for the nation’s government and economic policies,” said Frederic Ruffy, options strategist at WhatsTrading.com in New York.

Volume was light, with about 6.92 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, below the year-to-date daily average of 8.73 billion.

About three stocks rose for every one that fell on the New York Stock Exchange, while on the Nasdaq, more than two stocks rose for every one that fell.

(Additional reporting by Rodrigo Campos and Doris Frankel; Editing by Kenneth Barry)

Expectation of Republican win lifts Wall Street