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US stocks fall as Democrats lead US stocks shrug off Democrat win
(about 4 hours later)
US shares dipped on Wednesday after the Democrats gained back the House of Representatives in mid-term elections. US stocks reversed early losses as jitters over the Democratic win in the Congressional mid-term elections eased.
The market is nervous about the impact Democrats, who have regained the House after 12 years, will have on business. Early on, shares fell amid concerns that the Democratic party will not be as sympathetic to big business.
It remains to be seen who will win control of the Senate, further adding to investor uncertainty. But some experts now believe the election result could lead to gridlock for lawmakers.
The Dow Jones was trading 28 points, or 0.2%, lower at 12,128.20 in early trading, after falling as much as 0.5%. The S&P 500 and Nasdaq were down 0.2%. Elsewhere, Defence Secretary Donald Rumsfeld's resignation was a key factor in the Dow closing at record highs - as was a jump in technology stocks.
"This is almost the worst possible outcome for the markets," said Al Goldman, a strategist at AG Edwards. "There's a sense that things in Iraq aren't going the way people had hoped," Hans Olsen chief investment officer at Bingham Legg told Reuters.
"Usually the market can deal with whatever outcome, except an uncertain one." "Along with that, it's costing us a tremendous amount of money to be there."
Another analyst added: "Rumsfeld's leaving changes everything."
The blue chip Dow Jones closed 19.77 points higher at 12,176.54, while the technology-laced Nasdaq rose 9.06 to 2,384.94.
Business fearsBusiness fears
There are fears that Democrats may look to raise taxes and the minimum wage once they control the House of Representatives - and possibly the Senate. The mid-term election results had fuelled concerns that greater control by Democrats could provide a less business-friendly atmosphere in Washington, particularly for defence, drugs, oil and insurance industries.
Analysts said that the firms most likely to be affected by the Democrats' win were in the defence, pharmaceutical, oil and insurance industries. Millitary contrators were among the biggest fallers, with Lockheed Martin, Raytheon and Halliburton among the key losers.
Alternative energy firms, however, may be among those to benefit.
Democrats may also be less favourable to small business, especially in relation to tax breaks.Democrats may also be less favourable to small business, especially in relation to tax breaks.
Global concerns Alternative energy firms, however, are among those expected to benefit from the shift in power.
However, the overall outcome of the election is still undecided as it still remains to be seen who will gain control of the Senate. A result on the matter is not expected until late this month.
The deadlock may actually make it harder to get through any major spending programmes or additional tax cuts, analysts say.
Tackling the twin budget and trade deficits is a big task that requires a bipartisan approach - something that both sides pledged to do after the election.
Global worries
There is also concern that hopes for world trade talks may have been dealt a fatal blow by this election, with the Democrats unlikely to grant President Bush the authority to negotiate any further trade deals after the current provision runs out on 1 July 2007.There is also concern that hopes for world trade talks may have been dealt a fatal blow by this election, with the Democrats unlikely to grant President Bush the authority to negotiate any further trade deals after the current provision runs out on 1 July 2007.
Fears about jobs being exported to China played an important role in Democratic gains in the Midwest.Fears about jobs being exported to China played an important role in Democratic gains in the Midwest.
However, the bond markets may welcome the Democrats' stated commitment to tackle the long-term budget deficit.However, the bond markets may welcome the Democrats' stated commitment to tackle the long-term budget deficit.
The deadlock may actually make it harder to get through any major spending programmes or additional tax cuts, analysts say.
Tackling the twin budget and trade deficits is a big task that requires a bipartisan approach - something that both sides pledged to do after the election.
The economy proved a potent issue at the election, with many voters fearing for the future, despite the relatively strong economic performance of the Bush administration so far.The economy proved a potent issue at the election, with many voters fearing for the future, despite the relatively strong economic performance of the Bush administration so far.
Among the concerns was the fact that real wages did not seem to be rising for ordinary voters despite strong growth.Among the concerns was the fact that real wages did not seem to be rising for ordinary voters despite strong growth.
If the US economy continues to slow down, the economy will also be an issue in the 2008 presidential election.If the US economy continues to slow down, the economy will also be an issue in the 2008 presidential election.
Wider fall The market had largely priced in a significant Democratic win in the House of Representatives, but an undecided Senate race had unnerved investors who dislike uncertainty.
Even though the stock market fell, the Dow index remained above the 12,000 mark, a level it topped in October as it climbed to a record. A Microsoft update on the launch of Windows Vista also gave shares a lift.
The decline in US stocks echoed a general trend of declining European share indexes. News that the firm will make its new Windows operating system available to retail customers in January boosted technology stocks.
In the UK, the FTSE 100 of leading shares closed 0.08% down to 6,244 while Germany's Dax ended 0.2% lower at 6,349 and France's Cac 40 was 0.6% lower at 5,437.