Election uncertainty has done little to blunt investor confidence in the U.S. stock market, with the Dow on pace for its best post-Election Day rally in more than 100 years.
The Dow Jones Industrial Average rallied more than 705 points (2.6%) to 28,185 near midsession Wednesday, which would represent the sharpest daily gain since the 3.33% post-Election Day rally that followed the 1900 presidential race won by Republican President William McKinley over Democratic rival William Jennings Bryan.
Meanwhile, the 2020 race between President Donald Trump and former Vice President Joe Biden remains too close to call, and there are multiple paths to victory for each candidate.
The prospect of a democrat in the White House – any democrat – is traditionally a drag on financial markets in the days following a presidential election. Does this mean that financial markets are betting on a Trump victory? Actually, no.
Why Financial Markets Are Soaring Amid Election Uncertainty
Heading into the election, expectations for a Democratic sweep had been cited as a positive for equities based on expectations it would clear the way for a more aggressive round of stimulus spending to boost economic growth in the wake of the coronavirus pandemic.
But Democrats did not increase their majority in the House Tuesday night, and Republicans will likely retain control of the Senate. No “blue wave” there, and it blunts market prospects for more aggressive stimulus measures.
The positive for Wall Street is that a Republican majority in the Senate squelches the odds for Democrats to repeal the 2017 corporate tax cut, one of Biden’s campaign pledges.
Barry Bannister, head of institutional equity strategy at Stifel – a Wall Street bull who accurately forecast the market’s rebound from its March pandemic low – said in a note Wednesday that investors consider reduced regulations and a lower corporate tax burden as a better indicator of long-term economic growth than stimulus measures.
“Divided government should take tax increases off the table (which may have shaved around 10% off 2021 S&P 500 [earnings per share] if enacted) while reducing (but not eliminating) a large stimulus package that would have increased economic reflation (which would have been good for ‘value’ but compressed the [price/earnings] ratio of the S&P 500); we prefer growth stocks,” Bannister said.
With both Trump and Biden pining to be “big spenders,” control of the White House is somewhat less relevant than control of the Senate, he added.
The Takeaway: As far as financial markets are concerned, your 401K is on solid ground regardless of whether or not Biden wins the presidency.
So where do we stand a day after Americans cast their ballots (and several days before Pennsylvania will bother to count theirs)?
WIBC host Tony Katz takes a look at where the 2020 Presidential Election stands in the clip below.
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