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Wall Street Closes 2 Percent Higher on Election Day Stimulus Hopes

Wall Street Closes 2 Percent Higher on Election Day Stimulus Hopes
(Joe Sohm/Dreamstime)

Tuesday, 03 November 2020 04:03 PM

U.S. stocks closed sharply higher on Tuesday as Americans voted in one of the country's most rancorous presidential elections and investors bet it would be decided without a prolonged process, leading to a swift deal on more fiscal stimulus.

Democrat Joe Biden's lead over Republican President Donald Trump in national opinion polls has raised expectations for a decisive outcome and a post-election stimulus package that would make good on Biden's promises of infrastructure spending.

Some analysts said the market's strong gains also reflected a rebound from a selloff last week, the biggest weekly percentage decline for the S&P 500 in over seven months.

"It seems as though the polls have narrowed which makes it a little bit more difficult for Biden but the market reacting the way it is now tells me the market thinks we are going to get a resolution fairly quickly," said Randy Frederick, vice president of trading and derivatives for Charles Schwab in Austin, Texas.

"If for some reason we don't have any kind of a clear picture, if there is an unwillingness to concede on the part of the loser and this ends up having to go to the courts, we are in for some choppy, volatile markets for awhile."

On Election Night 2016, U.S. stock index futures plunged as it became apparent Trump could pull an upset victory against Democrat Hillary Clinton. The benchmark S&P 500 has since risen 55% as Trump's lower tax rates boosted corporate profits and share buybacks.

Unofficially, the Dow Jones Industrial Average rose 545.41 points, or 2.03%, to 27,470.46, the S&P 500 gained 57.82 points, or 1.75%, to 3,368.06 and the Nasdaq Composite added 198.47 points, or 1.81%, to 11,156.08.

Gains were broad, with 10 of the 11 major S&P sectors on the plus side, led by financials and industrials while investors pared some bets on post-vote volatility that dominated in recent weeks. The CBOE Volatility index touched a one-week low after hitting a 4-1/2 month high last week.

Not all of the stock sectors analysts identified as likely winners from a Democrat sweep were up, however, with marijuana and renewable energy companies lower.

Democrats are also favored to emerge from 14 hotly contested U.S. Senate races with full control of Congress, although final results from at least five of those contests may not be available for days, or months in some cases.

Some view the races in hotly contested swing states as close enough that Trump could piece together the 270 Electoral College votes he needs to stay in the White House another four years.

The S&P banking subindex surged to its highest in more than a week, while industrial stocks gained, with Caterpillar Inc and Honeywell International Inc up both moving higher.

GLOBAL MARKETS

The dollar slid and global equity markets rose on Tuesday on bets of increased stimulus if Biden wins the U.S. presidential election, but gold prices edged higher on the potential for contested voting results.

The former Democratic vice president is expected to boost stimulus spending and be less-combative on trade, which would lift other currencies at the dollar's expense.

Biden has held a strong lead in national polls, but Republican Trump is close enough in swing states possibly to gain the 270 Electoral College votes needed to retain the presidency.

"Asset classes are to a certain degree behaving as if Biden's going to win and the Democrats are going to take the Senate," said Marvin Loh, senior global macro strategist at State Street. "Maybe the market is getting comfortable with a blue wave. I’m not convinced that's the case."

The strong equity rally the past two days would indicate something has become more definitive, yet the election outcome may be days if not longer away, Loh said.

Phil Orlando, chief equity market strategist at Federated Hermes in New York, said Biden will overwhelmingly win the popular vote, but the election is likely to be contested.

While economic data suggests the economy has done well under Trump, "the Senate is more important than the presidency in terms of the stock market," Orlando said.

Investors hedged their bets, seeking the safety of safe-haven gold, which also can rally due to a weaker dollar. Stocks rose on Wall Street and in Europe on hopes for more fiscal stimulus to combat a growing coronavirus pandemic.

Stocks climbed in Asia after the Reserve Bank of Australia cut interest rates to near zero and boosted its bond-buying program, a precursor to expectations the Bank of England on Thursday will also ramp up its bond purchases.

"The sole driver behind gold prices is the high likelihood that there is going to be chaos surrounding the U.S. elections, from the predictions of not having a president by tonight," said Jeffrey Sica, founder of Circle Squared Alternative Investments.

U.S. gold futures settled up 0.9% at $1,910.40 an ounce, while MSCI's benchmark for global equity markets rose 1.79% to 567.83 and Europe's broad FTSEurofirst 300 index added 2.35% to 1,378.11.

In Europe, growth-sensitive cyclical sectors such as oil and gas, mining and banks once again led the rally.

Analysts said that while the mood was more upbeat on Tuesday, it remained weak at heart as European countries introduced tougher lockdowns to fight a pandemic that was set to hit their economies harder.

Investors await the outcomes of Federal Reserve and Bank of England meetings this week, which are also expected to bring more support.

"The problem with markets is that they are very binary. One day everything is hunky dory and the next day it's the depths of despair, and so you have to tread that tightrope between the two that creates volatility," said Michael Hewson, chief market analyst at CMC Markets.

MSCI's broadest index of Asia-Pacific shares outside Japan added 1.4% overnight. The gauge is less than 1% shy of a two-and-a-half-year high struck in mid-October and up over 5% this year, driven by a 37% rebound from China's markets since March.

Currency markets tilted toward a victory for Biden.

The dollar index fell 0.588%, with the euro up 0.61% to $1.1711. The Japanese yen strengthened 0.21% versus the greenback at 104.50 per dollar.

The 10-year U.S. Treasury note rose 4.4 basis points to 0.8925%.

Oil prices gained about 2% as financial markets staged a broad recovery despite growing concerns that surging coronavirus cases around the world would further crimp fuel demand.

Brent crude futures rose 74 cents to settle at $39.71 a barrel. U.S. crude futures settled up 85 cents at $37.66 a barrel.

© 2021 Thomson/Reuters. All rights reserved.


   
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U.S. stocks rallied on Tuesday as Americans voted in one of the country's most turbulent presidential elections and investors bet it would be decided without a drawn-out process, leading to a swift deal on more fiscal stimulus.
wall street, stock market, dow, election day
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2020-03-03
Tuesday, 03 November 2020 04:03 PM
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