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This is because Investors assume that with the Senate in the hands of Republicans the possibility of a tax increase decreases.
The presidential race appeared to be leaning toward Democratic candidate Joe Biden, but Republican President Donald Trump promised to fight to the end in court, if necessary.
Thus, in the same dynamic that it assumed since the beginning of the week, the New York Stock Exchange ended up in a strong rise this Thursday in a market that incorporates the idea of a Biden mandate.
The Dow Jones Industrial Average rose 1.95% to 28,390.24 points, the Nasdaq technology 2.59% to 11,890.93 points and the S&P 500 expanded index gained 1.95% to 3,510.45 points.
In Europe, London gained 0.4% at the close, Frankfurt 2%, Paris 1.2%, Madrid 2.1%, Milan 1.93%. The Asian markets also experienced a day of optimism and they closed with significant increases.
In Japan, the Nikkei index gained 1.73% and reached its highest values this year, breaking the symbolic barrier of 24,000 points for the first time since January. The Topix index also rose 1.39%.
The Shanghai stock market increased 1.30% and the Shenzhen 1.67%, while in Hong Kong the Hang Seng index rose 3.25%.
“Likely Republican control of the Senate should curb attempts at higher taxes and greater business regulation, while the White House reduces trade tensions with other world powers,” explained AJ Bell’s chief investment officer, Russ Mold.
“Normally political uncertainty and a stock market rise do not go together, but some assume that Biden will not be able to do much if he unseats Donald Trump in the race for the White House, because the Senate will probably remain under Republican control,” added the analyst of markets David Madden of CMC Markets UK.
The fragmented political scenario “will hinder profound changes in the taxation of companies and the regulation of new technologies,” added Juichi Wako, strategist at Nomura Securities.
Thanks to this situation, the technological giants Facebook and Alphabet (owner of Google) recorded spectacular gains in the markets on Wednesday.
“It matters little who wins”
The final resolution of the political duel in the United States remains uncertain, although Biden approaches the White House after winning the decisive states such as Wisconsin and Michigan.
Investors were betting on the rapid creation of an ambitious state plan that stimulates the economy in the face of the recession caused by COVID-19.
“It matters little who wins,” notes analyst Axi Milan, as “both parties will be forced to react quickly to the growing pressure on the US economy.”
However, Axa’s chief economist, Gilles Moec, was concerned as “For now it will be very difficult to count on a stimulus before the arrival of the new administration” in January.
“Even if we imagine that a consensus will be reached for minimal stimulus, I doubt that it lives up to expectations,” he added.
Time is short and the situation of covid-19 worsens in Europe and the United States, where a record was registered with almost 100,000 cases daily in the last 24 hours, a serious epidemic situation that worries the markets.
Fed maintains rates
For its part, the United States Federal Reserve (Fed, central bank) kept benchmark interest rates close to zero and advocated a new reactivation plan, amid a “particularly worrying” increase in coronavirus cases.
The body, which held its periodic monetary policy meeting Wednesday and Thursday, kept its rates in a range of 0 to 0.25% without surprises and will leave them unchanged until the labor market recovers, its monetary committee announced on Thursday.
Its president, Jerome Powell, said that in the face of a faltering recovery after the recession that followed the outbreak of the COVID-19 pandemic in the world’s largest economy, a new plan to support the economy “may be necessary.”
The $ 2.7 trillion recovery plan approved in March allowed to limit the damage to the economy, but its benefits are gradually coming to an end, and Congress is trying to find an agreement between Republicans and Democrats for new massive aid.
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