U.S. stocks finished sharply higher for a fourth day Thursday, for what is so far the best week since April, as investors bet the election outcome will be a divided government, meaning few major legislative changes that might pose a threat to earnings.
Investors looked past the Federal Reserve policy statement which reiterated its view of an economy performing “well below pre-pandemic levels” as coronavirus cases rise in the U.S. and Europe, prompting further restrictions on business and consumer activity.
What are major benchmarks doing?
The Dow Jones Industrial Average DJIA, +1.94% rose 542.52 points, or 2%, to end at 28,390.18, while the S&P 500 SPX, +1.94% gained 67.01 points, or 2%, to trade at 3,510.45. The Nasdaq Composite COMP, +2.59% closed up 300.15 points, or 2.6%, at 11,890.93.
The Russell 2000 RUT, +2.78%, which focused on small-cap shares, climbed 2.8%.
The Dow on Wednesday rose 367.63 points, or 1.3%, to close at 27,847.66, while the S&P 500 advanced 74.28 points, or 2.2%, to end at 3,443.44. The Nasdaq Composite surged 430.21 points, or 3.9%, to finish at 11,590.78. The gains for the S&P 500 and the Nasdaq marked the biggest jumps for the day after Election Day on record.
Thursday’s gains put the benchmark indexes on pace for their biggest weekly gains since April. The Dow is up 7.1% week to date. The S&P 500 and Nasdaq are up 7.4% and 9%, respectively.
What’s driving the market?
The Federal Reserve left policy on hold, as expected, after its two-day meeting. In its policy statement, the U.S. central bank said economic activity continued to recover but remained well below pre-pandemic levels.
Fed Chairman Jerome Powell said more fiscal action was needed to prop up the economy. Though he said the growth outlook remained murky, the risk of a worst-case scenario for the economy had receded.
However, investors were mostly focused on the outcome of the presidential election. The bullish reaction to the results so far may be due to the prospects of a divided government.
“As much as the presidency matters, the Senate matters more to markets. We are looking at a status quo with a split Congress,” said Esty Dwek, head of global market strategy at Natixis Investment Managers, in an interview.
“You get the best of both worlds — a president who is more traditional but who is likely to have a more centrist cabinet,” said Dwek.
Biden won Michigan and Wisconsin on Wednesday, putting him six votes away from the 270 needed in the electoral college for victory, while prospects for Democrats to take control of the Senate continued to fade.
Heading into the election, analysts had argued that a “blue wave” or Democratic sweep of both the White House and Congress was being priced into the market which rallied on expectations that such a result would clear the way for another large round of financial aid to support the economic recovery from the coronavirus pandemic. However, investors appeared far from disappointed with the prospect of a divided government.
Mark Haefele, chief investment officer at UBS, said the positive equity market reaction “reflects some reduction in uncertainty, as investors now know more about the likely outcome and potential policies.”
While some uncertainty remains around the election results and the Trump campaign presses legal challenges, Haefele noted the Cboe Volatility Index VIX, -6.73%, a measure of expected volatility in the S&P 500 over the next 30 days, has continued to retreat in the wake of the results. The index was down around 2 points at 27.12 after trading in the mid-30s ahead of Election Day, a sign that anxiety around a contested election has faded. The index’s long-term average is around 19.
A continued rise in COVID-19 cases remains a concern, analysts said. The number of daily new U.S. infections hit a record above 100,000 on Wednesday while a surge in the spread of the virus has prompted tighter lockdowns in European countries.
Read: Overshadowed by election, Fed aims to keep it that way
In U.S. economic data Thursday, the Labor Department reported first-time jobless benefit claims fell 7,000 to from a revised 751,000 last week.
Which companies are in focus?
- Shares of Qualcomm Inc. QCOM, +12.74% jumped nearly 13% after the chip maker’s quarterly results and outlook breezed past Wall Street estimates as it benefited from 5G product rollouts.
- Expedia Group Inc. EXPE, +4.67% shares rose 4.7% after the travel company late Wednesday said third-quarter sales were slashed by more than half but that it managed to pare losses compared with the earlier stages of the COVID-19 pandemic.
- Shares of Alibaba Group Holding Ltd. BABA, -2.69% were 2.7% lower despite the Chinese e-commerce giant delivering stronger-than-expected earnings Thursday morning.
- Regeneron Pharmaceuticals Inc. REGN, +0.28% shares were up 0.3% after the drug company easily topped estimates for the third quarter and said it had shared data from its Phase 2/3 COVID-19 vaccine candidate trial with regulators.
- Shares of Bristol-Myers Squibb Co. BMY, -2.56% fell 2.6%, despite the drugmaker largely beating expectations for the third quarter.
- Cigna Corp. CI, +1.68% shares rose 1.7% after the health insurer reported third-quarter profit and revenue that beat expectations, while providing a full-year outlook that offered no surprises.
- General Motors GM, +5.39% climbed 5.4% after the auto maker reported a third-quarter profit that was well above expectations, as sales in the U.S. and China recovered from COVID-19-related weakness faster than expected.
What are other markets doing?
The yield on the 10-year Treasury note TMUBMUSD10Y, 0.770% was up 0.7 basis point to 0.775%.
The Stoxx 600 Europe Index SXXP, +1.04% was up 1.1%, while London’s FTSE 100 UKX, +0.39% rose 0.4%.
Oil futures ended their three-day winning streak, with the U.S. benchmark CL.1, -1.58% falling 36 cents, or 0.9%, to $38.79 a barrel, while December gold futures GC00, +2.79% rose $50.60, or 2.7%, to settle at $1,946.80 an ounce on Comex.
The ICE U.S. Dollar Index DXY, -0.86%, a measure of the currency against a basket of six major rivals, slumped 0.8%.
Add Comment