After bouncing back earlier this week amid hopes that the arrival of Election Day will clear up the uncertainty that has been weighing on the markets, U.S. Treasury bond yields and futures rose, fell. and fell back overnight as early results showed a race that is still too close to call between President Donald Trump and former Vice President Joe Biden. It is unclear when a winner may emerge.
The S&P 500 was up 2.8% at 10:18 am ET. The Dow Jones Industrial Average rose 569 points, or 2.1%, to 28,062, and the Nasdaq Composite Index was up 3.7%.
Investors see cause for optimism if either candidate wins, but the stakes are high awaiting results. They include prospects for a major stimulus effort for the economy, potential tax rate hikes, and stricter regulations on companies that investors saw emerge from a potential Democratic sweep of the election – something that has so far not materialized.
Much of Tuesday’s strength for Wall Street was driven by big gains in tech stocks. Investors have increasingly viewed these stocks as some of the safest bets on the market, capable of increasing their profits even in a pandemic as daily life changes online. They don’t need a huge stimulus effort to the economy as much as other companies, leading to a much better performance for the high-tech Nasdaq over other indices. Facebook was up 7.1%, while Apple and Microsoft were up more than 4% each.
Other areas of the stock market, where earnings depend more on the strength of the economy, lagged. S&P 500 financial stocks fell 0.1%. The Russell 2000 Index of smaller companies was up just 0.5%.
Some of the market’s sharpest moves overnight were US government bond yields, which had previously risen due to expectations that a Democratic election sweep could open the door to some major economic stimulus.
The yield on the 10-year Treasury bonds went from 0.88% on Tuesday night to 0.94% when the polls closed. It then plunged as the odds of Democrats taking control of the Senate diminished and after Trump made premature claims of victories in several key states. It stood at 0.76% one hour after the opening of operations on Wall Street.
All the changes are somewhat reminiscent of those four years earlier, when Trump shocked the market by winning the White House. Markets initially fell after polls and market expectations proved so wrong in 2016, but expectations that Trump’s pro-business stance would be good for corporate earnings quickly changed.
The difference this time is that the uncertainty seems to persist. It may be days before a White House winner emerges, and professional investors say they are bracing for market swings in the meantime. Trump said earlier Wednesday that he would take the election to the Supreme Court, although exactly what he means by that is unclear, as states continue to count all of their votes.
“Both candidates at this stage often claim victory, but it is rare that we see an invocation of the judicial system at this time, and we expect a lot of market volatility,” Rick Lacaille, global chief investment officer at State Street Global Advisors, said in a release.
A contested election was the worst case for the markets because it would only prolong the uncertainty that has kept investors on edge.
“Basically, we are seeing a nightmare situation come true because now we are talking about legal battles,” said Naeem Aslam, an analyst at Avatrade.com.
A protracted court battle, said Quincy Krosby, chief market strategist at Prudential Financial, is “the last thing the market needs.”
The large number of Americans who voted early means that the outcome of this presidential election may not be known for days.
“The market hates uncertainty and if we have continued uncertainty then we will see prices drop, we will see volatility remain high,” said Kiran Ganesh, an analyst at UBS bank.
In the end, though, many fund managers suggest that investors hold their ground during the tumult in large part because one person can’t move the economy on their own, and stocks tend to rise regardless of which party controls the White House.
While a Trump victory may lower the odds of a big stimulus package for the economy, something investors have been clamoring for, it would also likely mean four more years of low tax rates and lighter regulation for businesses. What happens to the coronavirus pandemic will have a far greater effect on markets than the results of this election, many fund managers say.
Uber soared 12.3% and Lyft 11.1% after private transportation companies won a vote in California that allowed them to continue to classify their drivers as contractors rather than employees. Businesses and other app-based transportation and delivery services spent $ 200 million in an effort to bypass California lawmakers and courts to preserve their business model.
Germany’s DAX recovered from initial losses, gaining 0.8%. The CAC 40 in Paris was up 1.3% and the FTSE 100 in London was up 0.9%. Tokyo’s Nikkei 225 was up 1.7% and Hong Kong’s Hang Seng was down 0.2%.
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