Stocks traded solidly higher for most of Tuesday, but lost steam in the afternoon as Wall Street reacted to a big shakeup in the cryptocurrency space.
Earlier today, crypto exchange Binance said it plans to buy rival FTX's non-U.S. assets amid liquidity concerns at the latter firm. The news sent the price of Bitcoin tumbling 12.6% to $18,184 (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m.).
"Today is a bad day in crypto. Binance had to step in to save Sam Bankman-Fried's FTX crypto exchange," says Edward Moya, senior market strategist at currency data provider OANDA. "This is a major setback for many investors in cryptos who viewed [Bankman-Fried] as a white knight and one of the leaders in the space that was supposed to thrive once we got beyond this crypto winter." The news also pummeled stocks with exposure to digital assets such as cryptocurrency exchange Coinbase Global (COIN, -10.8%) and online trading platform Robinhood Markets (HOOD, -19.0%).
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The headlines created a whirlwind afternoon for the markets, with the Nasdaq Composite swinging from a nearly 2% gain in early trading to a 0.9% loss by mid-afternoon. The price action stabilized in the final hour of the session, with the tech-heavy index ending up 0.5% at 10,616. The broader S&P 500 Index rose 0.6% to 3,828, while the blue-chip Dow Jones Industrial Average outperformed (+1.0% at 33,160) as Amgen (AMGN) added 5.6% on a well-received update for its obesity drug.
Low-Vol ETFs to Consider After the Midterms
Today's early gains came as midterm elections were held across the country. And history suggests the stock market could continue to rise over the next few weeks. "Post-election, we would expect a small lift in the equity market over the next month (+1%) – assuming the consumer price index print on Thursday is not 'hot,'" says Wells Fargo analyst Chris Harvey.
While it will likely take weeks to find out the complete results of the midterms, most are expecting Republicans to win control in the House of Representatives. Harvey says that if we see a "red wave" – where the GOP gains control of both the House and the Senate – defensive stocks should continue to do well. This includes firms in the consumer staples and healthcare sectors. Harvey also says a red wave could be beneficial to low-volatility strategies, which have tended to see strong relative performance following previous elections where Republicans took control of Congress.
For investors looking to add defensive positions to their portfolio, here are 10 low-volatility exchange-traded funds that offer an inexpensive way to provide stability amid the market's twists and turns. Check them out.
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