Stocks are rallying Tuesday (US time) as Election Day finally arrives following a punishing campaign that created enough uncertainty to help send markets spinning.
More than anything, what investors hope for is a clear winner to emerge from the election, even if it takes a while for the votes to be tallied. Whether that’s President Donald Trump or former Vice President Joe Biden is less important, because history shows stocks tend to rise regardless of which party controls the White House.
In early afternoon trade, the Dow Jones is 2 per cent higher, the S&P500 has added 1.8 per cent and the Nasdaq has gained 1.9 per cent. After Tuesday’s bumper gains, futures at 5.19am AEDT are pointing for the ASX to slide 7 points, or 0.1 per cent, at the open.
“The markets are neither red nor blue and today they’re decidedly green,” said Rod von Lipsey, managing director at UBS Private Wealth Management.
What investors fear is the prospect of a contested election, one that drags on and injects even more uncertainty into markets. Much of Wall Street expects a sharp drop in stocks to happen in such a scenario. The future political makeup of the Senate is also another unknown factor throwing uncertainty into the markets, along with the eventual timing of a COVID-19 vaccine.
“There’s a sense that we might get some clarity on the outcome of the direction of one or two wild cards that have been moving the market,” von Lipsey said.
If Biden ends up winning, as polls suggest, the thought is that could open the door to a big support package for the economy, particularly if the Democrats also take control of the Senate. Many investors expect a “Democratic sweep, which is the key to unlocking Congress’s ability to deliver significant fiscal stimulus,” said Stephen Innes of Axi in a report.
If Trump were to win and the Senate stays under Republican control, it would likely lead to less stimulus than under a Democratic sweep, according to Chris Zaccarelli, chief investment officer for Independent Advisor Alliance. A Biden win and Republican Senate would be least beneficial to stocks, meanwhile, because it would mean the lowest chance for stimulus.
Investors and economists have been clamouring for a renewal of stimulus since the expiration of the last round of supplemental benefits for laid-off workers and other support approved earlier by Congress.
But investors see cases for optimism in other electoral scenarios, too, no matter who wins the White House. If Trump were to win, that would likely mean a continuation of lower tax rates and lighter regulation on businesses, which would prop up the corporate profits that are the lifeblood of the stock market.
Ultimately, many professional investors say which party controls Washington matters much less to the economy and markets than what happens with the pandemic and whether a vaccine can arrive soon to help the economy heal.
The election is dominating investors’ attention, but plenty of other market-moving events are looming this week. The Federal Reserve is meeting on interest-rate policy and will announce its decision on Thursday. Its earlier moves to slash interest rates to record lows and to step forcefully into bond markets to push prices higher have helped Wall Street soar since March.
The Labor Department is also releasing its jobs report for October on Friday, where economists expect to see another slowdown in growth. Meanwhile, it’s another heavy week for corporate earnings reports as companies continue to report drops in profit for the summer that weren’t as bad as Wall Street feared.
Hanging above it all is the continuing coronavirus pandemic. Several European governments are bringing back restrictions on businesses in hopes of stemming worsening virus counts. In the United States, where infections are also rising at a troubling rate, the worry is that fear alone of the virus could depress sales for companies.
So far this earnings reporting season, companies are saying their profits fell during the summer, but not by as much as Wall Street feared.
Arista Networks jumped 15.8 per cent to the biggest gain in the S&P 500 after the cloud-networking company reported a 19 per cent drop in net income that nevertheless topped analysts’ forecasts.
Gartner rose 11.6 per cent after its results for the latest quarter blew past analysts’ expectations.
In European stock markets, France’s CAC 40 rose 2.4 per cent, and Germany’s DAX returned 2.6 per cent. The FTSE 100 in London gained 2.3 per cent.
The yield on the 10-year Treasury rose to 0.88 per cent from 0.84 per cent late Monday.
A gauge of fear in the US stockmarket, which measures expected volatility for the S&P 500, fell 4.5 per cent and continued its decline following last week’s jump to its highest level since June.
Source: Thanks smh.com