Stocks were mostly higher on Monday, led by sharp gains in energy and financials. However, investors were also bracing for the upcoming U.S. midterm elections.
The Dow Jones Industrial Average gained more than 100 points as Chevron shares jumped 2.5 percent. The S&P 500 gained 0.4 rose as energy and financials both climbed more than 1 percent. The Nasdaq Composite fell 0.4 percent, however, as a decline in Apple shares dragged down the tech sector.
Chevron shares rose to lead the energy sector higher after Credit Suisse upgraded the stock to outperform from neutral, noting the company has a compelling free cash flow and valuation. Berkshire Hathaway lifted the financials sector, after the company reported over the weekend better-than-expected earnings.
U.S. voters will head to the polls on Tuesday for high-stakes elections that can send ripples throughout capital markets. Democrats are largely expected to regain control of the House, with Republicans forecast to retain a slim majority in the Senate. This outcome is seen as largely positive as, historically, a government has led to solid gains in the stock market.
If the GOP maintains a majority in both chambers, it could give stocks a short-term boost as it increases the likelihood of further tax cuts. Meanwhile, a so-called Democratic sweep could pressure stocks as it could lead to a reversal of some of the policies passed by the GOP to boost the economy.
The Democrats were leading with a 7 point advantage ahead of the contest, according to an NBC News/Wall Street Journal poll released Sunday.
Stocks gains were also limited as Apple shares dipped 2.5 percent. The tech giant’s decline comes after Rosenblatt Securities downgraded Apple amid expectations of lower iPhone sales.
Investors are also grappling with uncertainty on the trade front. Stocks were hit with a wild bout of volatility during Friday’s trading session amid conflicting comments and reports on global trade. President Donald Trump’s economic advisor Larry Kudlow told CNBC there was “no massive movement to deal with China,”contradicting an earlier report that Trump had asked officials to prepare a draft for a U.S.-China trade deal.
On Monday, Chinese President Xi Jinping reiterated his rhetoric against protectionism and commitment to free trade in a speech. Xi said his country was pursuing “a new round of high-standard opening up” to broaden market access to the rest of the world.
Investors have been jittery since the start of the fourth quarter as worries about rising interest rates, slowing earnings growth and lingering trade fears have dented sentiment. The Cboe Volatility index, widely considered the best gauge of fear in the market, is up more than 65 percent this quarter.
“The stock market currently faces many challenges,” said Jim Paulsen, chief investment strategist at The Leuthold Group, in a note to clients. “But could it also lose its earnings story? … Indeed, if sales only rise 5% next year (more in line with nominal global GDP growth), even a very mild contraction in profit margins could shockingly cause earnings to fall.”
“Saying farewell to a trusted friend and guardian (solid profitability) is never easy, and if the numerous challenges listed above remain while earnings disappoint, the stock market may yet have further to fall,” Paulsen said.