U.S. stocks fell sharply in choppy trading on Wednesday and were on track to snap a three-day rally. Disappointing earnings from Disney, a rout in cryptocurrency markets and an uncertain outcome of the midterm elections weighed on sentiment, with investors also looking ahead to an inflation report that was expected to show a rise in headline CPI. The elections did not lead to a Republican sweep , as the party looked set to gain control of the House, but the race for Congress was yet to be determined. The uncertainty reflected in the stock market as all three averages opened lower to start Wednesday's trading session. "Election results are still uncertain, but the red wave that models, investors, and betting markets anticipated did not materialize, and near-term, that will add to already elevated volatility," 22V Research said. The indices then fell further after a report that Binance was unlikely to go through with its proposed acquisition of the struggling FTX after seeing its financials. The news sent crypto markets into a tailspin , with bitcoin ( BTC-USD ) slipping below $17K and ethereum ( ETH-USD ) falling 10%. By late afternoon, the tech-heavy Nasdaq Composite ( COMP.IND ) had fallen 2.25% to 10,377.79 points, dragged down by losses in megacap technology firms. The benchmark S&P 500 ( SP500 ) retreated 1.80% to 3,759.39 points. The blue-chip Dow ( DJI ) was 1.66% lower at 32,611.72 points. All 11 S&P sectors were trading in the red, with energy stocks falling the most on the uncertain election results, a jump in COVID cases in China and a criticism by the International Energy Agency of last month's OPEC+ oil cut. Heavyweight sectors Consumer Discretionary and Technology also fell over 2%. Market participants are turning their attention from the election to the CPI report due Thursday. Inflation has been one of the sticking points of President Biden's administration with voters. Economists are expecting for a rise of about 0.6% in headline CPI for October, bringing the Y/Y rate down to 8%. "A high CPI print could push terminal rate expectations higher and revive the debate about further financial condition tightening being needed. A weak print would increase expectations for an instrument pivot. Near-term vol is tied to unpredictable economic data," 22V said. "Longer-term, we expect volatility will trend lower given slowing growth and stable terminal rate expectations, but this week could be a speed bump." Truist's co-chief investment officer Keith Lerner believes that the midterm elections won't significantly alter the current economic and market trajectory. "Investors need to look well beyond the political makeup to gauge markets' risk/reward. Factors, such as the business cycle, monetary policy, and fundamentals will have a larger impact on the market’s near-term direction," Lerner said in a research note. "Stocks have risen in the 12 months following every midterm election since 1942, but there has also never been a recession in the third year of a presidential cycle," Lerner added. In earnings related news, a disappointing quarterly report sent shares of Disney tumbling more than 12% . The entertainment giant was the top S&P and Dow percentage loser. Among other movers, AI-based lending platform Upstart slumped after a soft guidance. Kids video game company Roblox also plunged on its results. Meta Platforms gained around 6% as Wall Street reacted positively to the Facebook parent's plans to cut jobs. Biotech Clovis Oncology cratered on bankruptcy concerns . Turning to rates, Treasury yields were mixed. The 10-year Treasury yield ( US10Y ) had reversed course and was up 3 basis points to 4.16%. The 2-year yield ( US2Y ) was down 4 basis points to 4.63%. The dollar index ( DXY ) was higher by 0.8% at 110.53.
