Tags: 2020 Elections | wall street | stock market | investors | election

Dow Jumps 370 Points as Investors Expect Washington Gridlock

Dow Jumps 370 Points as Investors Expect Washington Gridlock
(Natalia Bratslavsky/Dreamstime)

Wednesday, 04 November 2020 04:33 PM

U.S. stocks surged to close higher on Wednesday as the presidential election race remained cloudy but the likelihood of gridlock in Congress made investors optimistic that major policy changes would be difficult to enact.

Both President Donald Trump and Democratic nominee Joe Biden still had paths to reach the 270 Electoral College votes needed to win as states kept counting mail-in ballots. Biden held a narrow lead in Wisconsin while Trump's campaign said it had filed a lawsuit to try and halt vote counting in that state.

A surprise win by Republican Senator Susan Collins in Maine dimmed hopes by Democrats that they could get control of the U.S. Senate.

Growth stocks, currently comprised of a large portion of names in areas such as tech, surged 4.31% as investors expected them to keep outperforming value stocks as they have in recent months. Value names, which closed flat, are currently comprised of mostly cyclical stocks such as banks and energy.

"Even if Joe Biden wins the Presidency, it looks like we are going to have a divided congress so the opportunity to have meaningful change at the fiscal level is pretty slim, and that is what is being priced into the back end of the market today," said David Joy, chief market strategist at Ameriprise Financial in Boston.

"If we are going to have a similar type of economic environment as we’ve had, then we are going back to an emphasis on trying to find earnings in a relatively scarce earnings environment, back to the same winners as before."

The Dow Jones Industrial Average rose 367.63 points, or 1.34%, to 27,847.66, the S&P 500 gained 74.28 points, or 2.20%, to 3,443.44 and the Nasdaq Composite added 430.21 points, or 3.85%, to 11,590.78.

The Dow had been up about 800 points earlier.

It was the biggest daily percentage gain for the S&P 500 since June 5 and for the Nasdaq, since April 14. Still, advancing issues outnumbered declining ones on the NYSE by just a 1.36-to-1 ratio; on Nasdaq, a 1.26-to-1 ratio favored advancers.

The S&P healthcare index jumped 4.45% to close at a record high, and the information technology sector also gained strongly, as a divided Congress means slimmer chances for heightened antitrust scrutiny, capital gains taxes and a restoration of parts of the Affordable Care Act. The healthcare index notched its biggest daily percentage gain in about seven months.

Still, investors said they favor a definitive, swift resolution of the presidential race that would clear the way for a deal on a stimulus package to revive the economy.

The NYSE FANG+TM Index, which includes the core FAANG stocks such as Apple and Amazon jumped 4.34% .

Shares of defense contractors Northrop Grumman, Lockheed Martin and Raytheon all rose on receding chances of a cut in the defense budget.

Big Pharma Pfizer, Merck & Co and Johnson & Johnson also climbed as the potentially split Congress was likely to shield the industry from sweeping reform. The NYSE Arca pharmaceutical index shot 4.66% higher.

The CBOE volatility index, a gauge for short-term volatility, hit a two-week low after spiking to a four-month high in the run-up to the election.

Despite the rally in stocks, the potential for political uncertainty also sent investors to U.S. Treasuries, sparking the biggest one-day drop in 10- and 30-year bond yields since June. Shares of U.S. banks, which typically track Treasury yields, slumped.

The S&P 500 posted 49 new 52-week highs and no new lows; the Nasdaq Composite recorded 112 new highs and 28 new lows.

Volume on U.S. exchanges was 10.39 billion shares, compared with the 9.09 billion average for the full session over the last 20 trading days.

GLOBAL MARKETS

The dollar rose and world equity markets rallied on Wednesday as investors bet that a progressive "Blue Wave" Democratic agenda of heavy fiscal spending and more regulation was unlikely as the outcome of the U.S. presidential election remained unclear.

The dollar jumped more than 1% early on Wednesday after President Donald Trump won the major battleground state of Florida, leading investors to believe Democratic Party control of Congress was not in the cards even if former vice president Joe Biden winds up winning the White House.

Biden extended his narrow lead in Michigan while maintaining a slight edge in Wisconsin, according to Edison Research. CNN and the Associated Press projected Biden would win the state.

Trump, who falsely claimed victory and made unsubstantiated allegations of electoral fraud, won both of the pivotal battleground states in 2016.

Officials from each campaign insisted their candidate would prevail in the fight for 270 Electoral College votes needed to win the presidency.

But Republicans were likely to retain control of the Senate after Senator Susan Collins scored a surprise re-election victory in Maine, which would effectively forestall any major change in taxes, regulation or spending.

Growth stocks pushed the major indexes on Wall Street sharply higher on the notion that a divided Congress would curb efforts to tax the big U.S. technology heavyweights.

"That decisive Blue Wave doesn't look like it's going to happen, and I think that markets are comfortable, perhaps, even if Biden wins," said Michael Arone, chief investment strategist at State Street Global Advisors in Boston.

"Investors have headed back to their security blankets," he said. "Reliable growth technology companies, 10-year Treasuries are rallying, a pivot toward safety and the U.S. dollar."

Stocks surged, with MSCI's benchmark for global markets posting its biggest daily percentage gain since mid-June. The gauge of equity performance in 49 countries rose 1.94% to 579.09, and the pan-European FTSEurofirst 300 index closed up 2.1% at 1406.62.

The dollar will weaken next year as a divided Congress will likely force the Federal Reserve to do more in the coming months to help the economy recover, said Edward Moya, senior market analyst at OANDA in New York.

"You're probably going to see that the dollar decline will still take place, it just won't be as accelerated as with what would have happened with a blue wave," he said.

The dollar index rose 0.385%, with the euro up 0.03% to $1.1714. The Japanese yen weakened 0.05% versus the greenback at 104.53 per dollar.

Long-dated U.S. Treasury yields, which had climbed to multi-month highs ahead of the election results, plummeted when the likelihood of a Democratic sweep that had been priced into the market faded.

"Yesterday afternoon the market was probably pricing in about a 70%-75% chance of a Dem sweep," said Michael de Pass, global head of U.S. Treasury trading at Citadel Securities.

"As Trump won Florida and you realized this was going to be a bit of a close race and not a landslide, the tone changed very, very quickly," de Pass said.

Yields on the benchmark 10-year U.S. Treasury note fell 11.0 basis points to 0.7713%.

TOO CLOSE TO CALL

In Asia, Japan's Nikkei finished 1.7% higher, while MSCI's broadest index of Asia-Pacific shares outside Japan edged up 0.4%.

Chinese blue chips rose 0.7%, with markets uncertain how Sino-U.S. relations would develop.

Emerging market currencies pinballed. The Mexican peso recovered from a 2% tumble when the sudden chance of a Trump victory sparked nerves about U.S. trade policies continuing to favor tariffs.

Norway's crown, Australia's risk-sensitive dollar and Britain's pound were all fighting back too, China's yuan spun to hit a 2-week high while the Russian rouble, which had been one of the hardest decliners in the election run-up, gave back overnight gains.

Gold had been buoyed by the extensive liquidity but ran into profit-taking, losing as much 1% to $1,883 an ounce.

U.S. gold futures settled down 0.7% at $1,896.20.

Oil prices rose almost 4% as it is unlikely for U.S. gas and oil incentives to be removed in a split Congress and as data showed a large decline in U.S. crude inventories.

Brent crude futures rose $1.52 to settle at $41.23 a barrel. U.S. crude futures settled up $1.49 to $39.15 a barrel.

© 2021 Thomson/Reuters. All rights reserved.


   
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U.S. stocks surged to close higher on Wednesday as the presidential election race remained cloudy but the likelihood of gridlock in Congress made investors optimistic that major policy changes would be difficult to enact.
wall street, stock market, investors, election
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2020-33-04
Wednesday, 04 November 2020 04:33 PM
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