As millions of Americans went to the polls to elect their next president, as well as the new House of Representatives and more than a third of senators, Wall Street rose 2 percent Tuesday. Even if doubts remain in the key states of Florida, Ohio and Michiganthat could tip the final result in favor of Joe Biden (favorite in the polls) or Donald Trump, a surge of optimism has driven markets that have chosen to bet on a clearly defined outcome as early as Tuesday night.
At the close, the Dow Jones index gained 2.06 percent to 27,480 points (after a rise of 1.6 percent on Monday), while the large S&P 500 index gained 1.78 percent to 3,369 pts (up 1.23 percent on Monday), and the Nasdaq Composite, technology and biotech inventories climbed 1.85 percent to 11,160 pts (up 0.42 percent on Monday). The DJIA dropped by 6.5 percent in 5 days, the S&P 500 by 5.6 percent and the Nasdaq by 5.5 percent. The stock market in October also ended with a loss of 4.6% (DJIA), 2.8% (S&P 500) and 2.3% (Nasdaq), the worst monthly results since March.
The cyclical concepts pursued
Investors looked past the U.S. election on Monday and Tuesday, embracing signs of growth in the global economy, including manufacturing activity indexes in China, but also in Europe and the U.S., amid the second coronavirus wave. The EuroStoxx 50 index jumped 2.6 percent in Europe on Tuesday and the CAC 40 added 2.4 percent, helped by a recovery in cyclical stocks following the positive indicators released on Monday for the manufacturing sector.
Since Monday, on Wall Street, the cyclical industries have also helped the stock market, beginning with 2.2% rise in financials on Tuesday while manufacturers up 2.9% and technology up by 1.8% all thanks to the economic recovery.
Investors expect that the results of the presidential election will be known as soon as possible and that one of the two candidates, Joe Biden being the best-placed in the polls, will be granted a clear victory. Even if Wall Street’s favorite is not the Democratic candidate, as he aims to increase taxes on affluent households and businesses and tighten regulations, markets will live with it, particularly in the case of a “blue wave,” i.e. the Democratic camp’s House and Senate. The House is (and should remain so, according to polls) now run by Democrats, but the Senate is dominated by Republicans.
As for a straightforward Trump win, though it now seems impossible, it will be a continuation of the financial markets preferred for four years by the generous fiscal policy of the Republican president.