Investors kept rallying Thursday on the prospect of a Biden presidency, largely ignoring economic indicators that point to a slowing recovery.
MANHATTAN (CN) — The election count continues. So does Wall Street’s rally, as markets are poised for one of the best election weeks in decades.
The Dow Jones Industrial Average gained 542 points, nearly a 2% increase. The Nasdaq shot past the other indices, gaining 2.65%, while the S&P 500 rose by about 2%.
As with the last few days, gains began early on Wall Street. The Dow jumped up more than 400 points in the first few minutes of morning trading, a 1.5% increase, while the S&P 500 and Nasdaq outpaced it slightly.
Abroad, the rally continued. In Asia, the Hang Seng market in Hong Kong netted 3.2%, while South Korea’s index gained 2.4%. European markets were up across the board as well, with Germany’s Dax leading the pack at about 2% gained.
“Bottom line, the surge in stocks over the past two days is likely a ‘honeymoon’ effect of relative certainty of the election, combined with the market’s historical preference for a divided government,” Tom Essaye of the Sevens Reported wrote Thursday. He noted that the outlook for stocks over the medium- and long-term “remains constructive beyond politics.”
CNBC host Jim Cramer said on Thursday that Biden presidency with a Republican Senate would be “so boring” for the stock market — a good thing from his perspective. “It’s joyous,” he said. “We’ll look at earnings per share. We’ll look at how our companies are doing. We won’t have to worry. They can straddle the universe and not be called by Washington and be made fun of. That’s over. No more show trials.”
That kind of an investor’s paradise is more likely than not. Joe Biden remains in the lead and appears to be closing in on the 270 electoral votes needed to win the presidency. Meanwhile the Senate stands at a Republican majority, even with two seats in Georgia due for a run-off in early January. Amid mounting legal challenges from the Trump camp, and slow counting in battleground states, nothing is certain yet.
“Perhaps the likelihood that the Senate will not flip to the Democrats gives comfort that major legislation is unlikely for the next four years,” James Meyer of Tower Bridge Advisors wrote Wednesday. “That leans the economic reins in the hands of the Fed. Investors should like that.”
In the absence of a clear presidential winner on Thursday, markets turned to the Federal Open Markets Committee, which just concluded a two-day meeting by unanimously keeping benchmark interest rates at 0% to 0.25%.
In a webcast press conference, Fed Chair Jerome Powell said that, while the recovery was slowing, the worst-case scenarios that the central bank had planned for would not likely come to pass. “Clearly the tail risks we were worried about have subsided,” he said.
Powell noted the Fed would keep interest rates low and asset-purchasing programs running for some time. “We don’t take anything for granted,” Powell said. “We don’t expect that things will deteriorate, but nonetheless we have a habit of keeping things in place for a while.”
The Fed has been purchasing $80 billion in treasuries and $40 billion in mortgage-backed securities on a monthly basis since the late spring. “We are a long way from our goals, and we’re sort of halfway there on the labor recovery at best,” Powell noted. “There are parts of the economy where it’s going to be hard until there’s a vaccine.”
Abroad, central banks continue to work, as well. The Bank of England on Thursday boosted its quantitative easing by 150 billion pounds and slashed GDP forecasts for the British economy. While the bank kept interest rates at 0.1%, it left open the possibility of negative rates in the future.
“If the outlook for inflation weakens, the committee stands ready to take whatever additional action is necessary to achieve its remit,” the bank said, noting that, like the Federal Reserve, it wants to see sustained 2% inflation before it raises rates.
England has been ravaged by a second wave of coronavirus, which led to another round of shutdowns and all the economic fallout those entail. “There are signs that consumer spending has softened across a range of high-frequency indicators, while investment intentions have remained weak,” the bank said in a statement.
Pessimism in the business community has grown slightly, with growing weariness about downside risks in 2021.
“Businesses are worried that the nascent economic recovery is already running out of steam,” according to a survey of 142 companies by Oxford Economics. “In the short term, most respondents expect the initial recovery to be followed by either relatively subdued growth or a sharp weakening as the pandemic returns.”
New unemployment claims also fell by a few thousand claims for the week ending Oct. 31 to 751,000. Of course, total unemployment remains very high, with more than 1 million new claims in total filed last week due to new federal unemployment programs.
The Pandemic Unemployment Assistance program saw a slight uptick in claims filed, from 359,000 the week ending Oct. 24 to 362,000 last week.
Job-postings data from Indeed released on Thursday showed that, while postings are still increasing from their valley in May, the pace of improvement has slowed and remains 14% lower than October 2019.
The biggest drop has been in high-wage job postings, which are 18% lower than usual compared with low-wage postings at 9%, Indeed Hiring Lab chief economist Jed Kolko wrote. “Higher-wage industries like tech and finance might plan their headcounts based on what they expect demand to look like longer-term, in future quarters or years,” he wrote.
Earnings were relatively quiet on Thursday, but for a few outliers. The most notable was General Motors, which reported a 74% year-over-year gain in net income during the third quarter, eclipsing analyst expectations.
The automaker’s revenue is essentially the same as in Q3 2019, and GM said it expects its Q4 2020 earnings to pull back somewhat.
Most of GM’s success came in North America, where the automaker posted a $1.3 billion increase in sales compared with last year’s third quarter. Sales in China also increased, growing 12% year over year in Q3 2020.
Other, less notable earnings reports also were positive. Pharmaceutical company AstraZeneca posted an 8% increase in total revenue between Q3 2019 and Q3 2020. The British company reported that new medicines represented 52% of its total revenue, compared with 42% in Q3 2019. AstraZeneca is carrying out a third phase of trials on its Covid-19 treatment.
The New York Times Company reported a jump in net income, from $16 million in Q3 2019 to $33 million last quarter. The newspaper’s subscription base increased during that period but its advertising fell.
“We ended the quarter with approximately 6.9 million total subscriptions, and crossed the 7 million mark in the month of October,” CEO Meredith Kopit Levien said in a statement. “The news cycle certainly played a role, but as we are increasingly seeing with each passing quarter, so too did the breadth of our coverage and our improving ability to mean more to more people.”
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