Stocks around the world are pushing higher Wednesday, but only after spinning through an election night dominated by surprises and sharp swings.
After rallying early this week amid hopes that Election Day’s arrival could clear the uncertainty that’s been weighing on markets, Treasury yields and U.S. stock futures swung up, down and back again overnight as early results showed a race that’s still too close to call between President Donald Trump and former Vice President Joe Biden. It’s unclear when a winner can emerge.
The S&P 500 was up 2.8%, as of 10:18 a.m. Eastern time. The Dow Jones Industrial Average was up 569 points, or 2.1%, at 28,062, and the Nasdaq composite jumped 3.7%.
Investors see cause for optimism if either candidate wins, but much is at stake pending the results. They include prospects for a big stimulus effort for the economy, potential tax rate increases and tighter regulations on businesses that investors saw coming from a potential Democratic sweep of the elections, something that has so far failed to materialize.
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, leading to the much better performance for the tech-heavy Nasdaq over other indexes. Facebook jumped 7.1%, while Apple and Microsoft each rose more than 4%.
Other areas of the stock market, where profits are more dependent on the strength of the economy, lagged behind. Financial stocks in the S&P 500 fell 0.1%. The Russell 2000 index of smaller companies rose just 0.5%.
Some of the market’s sharpest moves overnight were in yields for U.S. government bonds, which had earlier risen on expectations that a Democratic electoral sweep could open the door for big economic stimulus.
The 10-year Treasury yield swung from 0.88% late Tuesday up to 0.94% as polls were closing. It then sank as odds for a Democratic takeover of the Senate diminished and after Trump made premature claims of victories in several key states. It sat at 0.76% an hour after trading opened on Wall Street.
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 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.
“Both candidates at this stage often claim victory, but it’s rare that we see an invocation of the court system at this point, and we expect quite a lot of market volatility,” Rick Lacaille, global chief investment officer at State Street Global Advisors, said in a statement.
A contested election was a worst-case scenario for markets because it would only prolong the uncertainty that’s been keeping investors on edge.
“Basically, we are seeing a nightmare situation come true because now we are talking about legal battles,” said Naeem Aslam, analyst at Avatrade.com.
A drawn-out 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 the result of this presidential election might not be known for days.
“The market hates uncertainty and if we have continued uncertainty, then we’re going to see prices fall, we’re going to see volatility remaining high,” said Kiran Ganesh, analyst at UBS bank.
In the end, though, many fund managers suggest investors hold steady through the tumult in large part because one person can’t singlehandedly move the economy and stocks tend to rise regardless of which party controls the White House.
While a Trump win may lessen the odds of a big stimulus package for the economy — something that investors have been clamoring for — it would also likely mean four more years of low tax rates and lighter regulation on businesses. What happens with the coronavirus pandemic will have a much greater effect on markets than this election’s results, many fund managers say.
Uber soared 12.3% and Lyft jumped 11.1% after the ride-hailing companies won a vote in California allowing them to continue classifying their drivers as contractors instead of employees. The companies and other app-based ride-hailing and delivery services spent $200 million in an effort to circumvent California lawmakers and the courts to preserve their business model.
Germany’s DAX recovered from early losses, gaining 0.8%. The CAC 40 in Paris rose 1.3%, and the FTSE 100 in London climbed 0.9%. Tokyo’s Nikkei 225 rose 1.7% and the Hang Seng in Hong Kong declined 0.2%.