MANHATTAN (CN) — On Wednesday morning, the uncertain election caused stocks to post moderate gains. But momentum built throughout the day, even with the electoral picture still muddy, and market momentum led to a huge rally.
U.S. markets had looked muted in early trading, with the Dow gaining less than 1% and the S&P 500 increasing 1.6% at the opening bell. The Nasdaq, driven by the strength of its tech stocks, outpaced the other indices to notch 2.6% at the open.
Though the Dow kept rising throughout the day — at one point up 700 points, the biggest post-election rally in more than a century — the index halved its gains by the closing bell. It finished up only 369 points, a 1.3% increase for the day.
The S&P 500 did better, netting a 2.2%, while the Nasdaq once again was the shining star, topping out at a 3.8% increase due to gains among Big Tech member companies. Industry leaders Apple, Facebook and Google parent company Alphabet charged ahead with share value gains of 4%, 8.3% and 6%, respectively.
“The market knows where it is going to end up, but it may be a rocky road,” said J.B. Kurish, a finance professor at Emory University’s Goizueta Business School.
Wednesday’s gains were a continuation of the rally on Monday and Tuesday, as investors were hoping for a swift decision in the presidential race. When that didn’t happen, futures trading got choppy early Wednesday.
The presidential race remains in flux, with 248 electoral votes putting Biden in the lead of several projections. The latest state to be called in the former vice president’s favor, Wisconsin, was by less than 1% and won’t be certified until Dec. 1. The Trump campaign has called for a recount in Wisconsin, which holds 10 electoral votes.
Trump has a tougher road to reelection, with just 214 electoral votes, but the president has said he would challenge the results all the way to the U.S. Supreme Court. On Wednesday, the Trump campaign also called for a halt to counting ballots in Michigan, claiming it had not been allowed “meaningful access to numerous counting locations” in the state.
The uncertainty over the presidency is weighing on investors, but the failure of Democrats to take control of the Senate could also diminish a fourth stimulus package.
Senate Majority Leader Mitch McConnell, who easily coasted to reelection, said Wednesday afternoon a stimulus package was the top congressional priority next week when lawmakers reconvene. With Republicans in charge of the Senate, however, they can still dictate the terms to a degree.
“Regardless of the presidential winner, it does look like the Republicans will keep control of the Senate,” wrote Peter Boockvar, chief investment officer at Bleakley Advisory Group on Wednesday morning. “Thus, there will be no $2-3 Trillion spending package, but that doesn’t mean we don’t get something.”
Others are more optimistic. “This is an opportunity for a Republican Senate to say the election is behind us, there is a new president, and we need to get to work on all things vitally important to this country,” Kurish said.
Business groups remain positive on the election and the possibility of a Biden presidency. “We feel well and good about actually getting things done,” Neil Bradley, chief policy officer at the U.S. Chamber of Commerce, told reporters during a conference call.
Bradley expects a roughly $1.7 trillion fourth-phase stimulus bill to get passed in the next four months, and an infrastructure bill sometime in 2021. “There’s no reason to wait for inauguration” on a stimulus package, he said. “This is something that can get wrapped up and will get wrapped up in the lame duck.”
Lost in the election fervor were several economic indicators, which continue to paint a picture of a struggling economic rebound. Disappointing payroll numbers from ADP showed private payrolls gaining only 365,000 jobs last month, compared with the nearly double 650,000 expected and a far cry from the 735,000 jobs gained in September.
The decrease in jobs marks what many investors had feared: that the economy is slowing down again.
Several other economic indicators also moved markets later in the day. The Institute for Supply Management’s services index for October fell by 1.2 points, slightly lower than the expected number. Out of the 18 industries surveyed, 16 saw growth. Only the Arts/Entertainment/Recreation and Public Administration sectors saw a contraction last month.
ISM noted that, even though the index fell, it marks the fifth-straight month of growth following contraction in April and May. “There is a degree of uncertainty due to the pandemic, capacity constraints, logistics, and the elections,” said Anthony Nieves, chair of the ISM Services Business Survey Committee.
Another services index, released by IHS Markit, showed a slight increase from 54.9 in September to 54.6 last month.
“Growth of business activity accelerated markedly in October, indicating that the underlying health of the U.S. economy continued to recover at the start of the fourth quarter,” IHS Markit Chief Business Economist Chris Williamson said. “While fourth quarter GDP will invariably fail to match the strong rebound seen in the third quarter, the economy looks to be continuing to grow at an above-trend rate.”
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