Wall Street ended sharply lower on Wednesday as Republican gains in midterm elections appeared more modest than some expected, with investors also focusing on upcoming inflation data that will provide clues about the severity of future interest rate hikes.
Major indexes added to declines as Treasury yields climbed further after a poor auction of 10-year notes by the U.S. Treasury.
Republicans were still favored to win control of the House of Representatives but key races were too close to call, with a better-than-expected showing by Democrats diminishing the prospect of a so-called red wave of Republican gains.
"What was really more expected in the market was a red wave," said Jay Hatfield, CEO of Infrastructure Capital Management in New York. "I think we were in a unique situation where the more the Republicans won, the better off the market would have been. At least there would have been some stocks strongly rallying, like defense and energy stocks."
Also hurting sentiment, Walt Disney Co. tumbled after the entertainment heavyweight reported more losses from its push into streaming video.
Tesla Inc dropped to a two-year low after Chief Executive Elon Musk late on Tuesday disclosed that he sold $3.95 billion worth of shares in the electric-vehicle maker days after he closed the $44 billion deal for Twitter Inc.
Clean energy shares, which typically benefit under a Democratic leadership, rose, with the Invesco Solar ETF up for the day.
Wednesday's drop on Wall Street ended a three-day rally in which the S&P 500 had gained almost 3%.
With the election outcome still uncertain, investors were turning their attention to October inflation data due out on Thursday, which could shed more light on whether the Fed might soften its aggressive stance on interest rate hikes.
"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 Art Hogan, chief market strategist at B. Riley Financial.
Traders are split over whether the Fed will raise rates by 50 basis points or 75 basis points in December, according to CME Group's Fedwatch tool.
According to preliminary data, the S&P 500 lost 78.91 points, or 2.06%, to end at 3,749.20 points, while the Nasdaq Composite lost 263.02 points, or 2.46%, to 10,354.54. The Dow Jones Industrial Average fell 644.15 points, or 1.94%, to 32,516.68.
Investors also fretted about the health of major cryptocurrency exchange FTX with some questioning whether a rescue deal from bigger rival Binance would materialize, while the firm was reported to be part of a regulatory probe.
Meta Platforms Inc jumped after the Facebook parent said it was cutting 13% of its workforce, or more than 11,000 employees, in one of the biggest tech layoffs this year.
Wendy's Co rallied after the hamburger chain reported quarterly sales and profit that beat analysts' estimates.
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