Wall Street brushes off election uncertainty to surge higher

Stocks are rallying again on Wednesday (US time), but only after spinning through an election night dominated by surprises and sharp swings.

In early afternoon trade, the S&P 500 was up 3.1 per cent and on pace for its best day in seven months while the Dow Jones Industrial Average is 2.5 per cent higher and the tech-heavy Nasdaq has jumped by 4.3 per cent. The ASX is set for gains, with futures at 4.51am AEDT pointing to a gain of 53 points, or 0.9 per cent, at the open.

The s&P 500 is on track for its best day in seven months.
The s&P 500 is on track for its best day in seven months. Credit:AP

Analysts said the gains came as markets saw the upside of political control in Washington remaining split between Democrats and Republicans. But it followed up on a tumultuous overnight session where US stock futures and bond yields swung up, down and back again as results showed a race that’s still too early to call between President Donald Trump and former Vice President Joe Biden. It’s unclear when a winner for the presidency can emerge.

Markets are focusing just as much on control of the Senate, where prospects for a Democratic takeover appear to be dropping after Republicans held onto seats considered vulnerable. That in turn lowered the prospects for the tax increases and tighter regulations on businesses that investors saw coming in a potential Democratic sweep, even if it also hurts the likelihood of a big stimulus effort for the economy.


“The first information that people are digesting is that a split government is OK, and we can deal with this,” said Melda Mergen, deputy global head of equities, Columbia Threadneedle. “No big changes are expected anytime soon on the policy side.”

She cautioned, though, that the initial moves for the market may not last. “It’s a very quick reaction without knowing the final results,” she said. “It’s emotional rather than rational.”

Much of Tuesday’s strength for Wall Street was due to big gains for technology stocks. Investors have increasingly seen these stocks as some of the safer bets in the market, able to grow their profits even in a pandemic as more of daily life shifts online.

They don’t need a big stimulus effort for the economy as much as other companies, and the likelihood of Washington approving such a package dropped with the chances of a Democratic sweep. That led to the much better performance for the tech-heavy Nasdaq over other indexes. Microsoft, Amazon, Facebook and Google’s parent company all rose at least 5 per cent

Other areas of the stockmarket, where profits are more dependent on the strength of the economy, lagged behind. Financial stocks in the S&P 500 rose 0.3 per cent. Companies that make construction materials and could have benefited from a big infrastructure plan under a Democratic sweep were falling. .

Some of the market’s sharpest moves overnight were in yields for US government bonds, which had earlier risen on growing expectations for big economic stimulus.

The 10-year Treasury yield swung from 0.88 per cent late Tuesday up to 0.94 per cent as polls were closing. It then sank as low as 0.75 per cent after Trump made premature claims of victories in several key states, Republicans held onto Senate seats and a couple economic reports came in weaker than expected. It sat at 0.78 per cent in early afternoon trading.

All the swings are a bit reminiscent of four years earlier, when Trump surprised the market by winning the White House. Markets initially tumbled after polls and the market’s expectations proved to be so wrong in 2016, but they quickly turned around on expectations that Trump’s pro-business stance would be good for corporate profits.

The difference this time is that the uncertainty seems set to linger. It may take days for a winner of the White House to emerge, and professional investors say they’re bracing for sharp market swings in the meantime. Trump said early on Wednesday that he’d take the election to the Supreme Court, though it’s unclear exactly what he means by that as states continue to tally all their votes.

A drawn-out court battle “just adds more and more uncertainty, and the last thing the market needs is that,” said Quincy Krosby, chief market strategist at Prudential Financial.

Tech giants have been among the big winners on Wednesday.
Tech giants have been among the big winners on Wednesday. Credit:AP

In the end, though, many fund managers suggest investors hold steady through the tumult in large part because one person can’t single-handedly move the economy and stocks tend to rise regardless of which party controls the White House. What happens with the coronavirus pandemic will have a much greater effect on markets than this election’s results, many fund managers say.

“It’s really about the solution to the health crisis and how do we bridge between now and that eventual period of time,” said Bill Northey, senior investment director at US Bank Wealth Management.

Uber and Lyft both soared more than 12 per cent after the ride-hailing companies won a vote in California allowing them to continue classifying their drivers as contractors instead of employees and preserve their business models.

In Europe, Germany’s DAX recovered from early losses to gain 1.9 per cent. The CAC 40 in Paris rose 2.4 per cent, and the FTSE 100 in London climbed 1.7 per cent.

Besides the election’s impact on Trump’s enthusiasm for tariffs, European investors also watching for what it will do to the US dollar’s value. By making additional stimulus less likely, a divided US government could force the Federal Reserve to do even more on its own to support the economy, which could send the dollar lower against the euro and other currencies.

The Fed will announce its latest decision on interest-rate policy on Thursday. Its moves earlier this year to slash interest rates to record lows and prop up bond markets have helped Wall Street soar since March.

In Asia, Tokyo’s Nikkei 225 rose 1.7 per cent, South Korea’s Kospi rose 0.6 per cent, Hong Kong’s Hang Seng declined 0.2 per cent and stocks in Shanghai added 0.2 per cent.


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