Asian stocks looked set for gains after U.S. equities and bonds climbed, as investors showed confidence that the tightly contested election outcome would ensure key elements of the bull market remain intact.
The S&P 500 rose more than 2% and the Nasdaq 100 surged more than 4% in its best rally since April. Defensive shares outperformed while financial and industrial stocks lagged as investors turned from companies that are most closely tied to the economy’s prospects. The reduced likelihood of a multitrillion-dollar package prompted investors to buy Treasuries, sending yields down by the most since April. The dollar retreated.
A narrow victory by either Democratic challenger Joe Biden or President Donald Trump, coupled with a split legislature, will make it unlikely that Trump’s 2017 corporate tax cuts — an important driver to stock gains — are rolled back, as Biden has pledged to do. The failure by the Democrats to clearly sweep Congress and the White House does pare back bets that traders had made on a massive fiscalstimulus package, though some aid remains likely this year. At the same time it adds to pressure on the Federal Reserve — another crucial force behind the bull market — to pump money into an economy that was throttled by the pandemic.
“Part of what is going on is tech is rallying strongly, which is pushing the market up, and the reason tech is rallying is because it sold off, it was uniquely exposed to higher yields, higher taxes,” said Alicia Levine, chief strategist at BNY Mellon Investment Management. “That created a viscous reversion trade into cyclicals with the expectation yields were moving up with the prospect of further stimulus.”
With millions of votes in battleground states still being counted, and close contests in several key states, the presidential outcome may not be decided for days, or longer. The Trump campaign said it is suing in Pennsylvania and Michigan to halt vote counts that were trending toward Biden. It’s clear that the election is turning out to be messier and more drawn-out than Wall Street had hoped.
These are some key events coming up:
- Federal Reserve policy decision on Thursday.
- The key U.S. non-farm payrolls report is due Friday.
- Earnings are due this week from companies including Bristol-Myers Squibb Co., AstraZeneca Plc and Nintendo Co. on Thursday; Macquarie Group Ltd. and Toyota Motor Corp. are set for on Friday.
These are some of the main moves in markets:
- The S&P 500 rose 2.2%.
- Futures on Japan’s Nikkei 225 advanced 0.9%.
- Hang Seng futures rose 2.2%.
- Futures on Australia’s S&P/ASX 200 Index gained 0.1%.
- The Bloomberg Dollar Spot Index fell 0.2%.
- The yen was at 104.52 per dollar.
- The offshore yuan traded at 6.6241 per dollar.
- The euro bought $1.1722.
- The yield on 10-year Treasuries fell 13 basis points to 0.77%.
- West Texas Intermediate crude rose 3.5% to $38.99 a barrel.
- Gold was at $1,903.20 an ounce.
— With assistance by Sophie Caronello, and Kamaron Leach
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