MANHATTAN (CN) — With the presidency and several key Senate seats still in flux, choppy trading marred the residual rally from Tuesday.
Futures of the Dow Jones Industrial Average dipped around 8 p.m., only to sharply rise and then dip again throughout the night. The S&P 500 also fluctuated but at a lesser clip while Nasdaq futures remained in positive territory throughout the night.
By the morning bell the Dow gained 249 points, or 0.8%. The S&P 500 and the Nasdaq rose much higher, by 1.6% and 2.6%, respectively. The VIX, or the volatility index, continued its slow descent, hitting 31 points.
The muted reaction is a stark difference from Election Day, when markets had rallied. Some speculated the prior day’s rally was driven by what was thought to be an inevitable win by Joe Biden. As in 2016, however, polls proved less than useful in predicting the election.
Now voters of all stripes are yearning for the contest to be decided, while uncertainty could drag out until the end of the week, given estimates that votes in Pennsylvania, Michigan and Wisconsin may not be finalized for days.
Biden is in the lead with 227 electoral votes. President Trump, with 213 electoral votes, has tougher road to reelection. “We’ll be going to the U.S. Supreme Court,” he told supporters early Wednesday. “We want all voting to stop.”
The uncertainty over the presidency is weighing on investors, but in a way the failure of Democrats to take control of the Senate has been more of a concern.
“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 were more sanguine about the situation. Michael Hewson, chief market analyst at CMC Markets, wrote that investors are now treading water. “An uncertain outcome may not be the end of the world, as divided governments also mean that politicians will need to compromise to get things done,” he wrote. “However, the optimism of earlier this week is starting to get scaled back somewhat, particularly in bond markets.”
Markets abroad did not match the anxiety on Wall Street, with both Asian and European markets doing fairly well. Leading the pack in Asia, Japan’s Nikkei shot up 1.7%, with investors there hoping for a Trump win to bolster the yen.
European indices also seemed poised for at least a modestly positive day. By 9 a.m. EST, markets in Germany and France gained 1.3% and 1.7%, respectively, while the pan-European Stoxx 600 increased by 1.4%.
Many investors now hope the Federal Reserve swoops in again as an angel to save markets and the U.S. economy if political acrimony torpedoes any chance of a stimulus package.
“This is not a good outcome for the economy since the headwinds from rising Covid cases, troubled state and local government finances … and falling incomes as unemployment benefits expire, are growing in strength,” wrote James Knightley, chief international economist at ING in a note.
The Federal Open Market Committee is meeting today and Thursday, after which the Fed may announce new measures to prop up the economy. Some speculate the central bank could step in with more asset purchases, similar to its Main Street Lending Program, or liquidity measures.
“Federal Reserve Chair Jerome Powell is certain to repeat calls for additional fiscal support after tomorrow’s FOMC meeting, but those calls may fall on deaf ears if a contested election leads to more animosity and distrust between Democrats and Republicans,” Knightley wrote.
Many on Wall Street have credited the Fed with keeping markets afloat during the pandemic, though Powell and other governors at the central bank have persistently beat the drum for additional fiscal stimulus.
Lost in the election fervor, disappointing payroll data from ADP showed that private payrolls gained just 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.
“The labor market continues to add jobs, yet at a slower pace,” said Ahu Yildirmaz, head of the ADP Research Institute in a statement. “Although the pace is slower, we’ve seen employment gains across all industries and sizes.”
The job gains were evenly split among small, mid-sized, and large companies, though the service sector did far better than the goods-producing sector, notching 348,000 jobs compared to 17,000 jobs.
On Friday, the U.S. Labor Department will provide its own payroll report, which some economists predict will show at least 530,000 jobs gained last month.Follow @NickRummell
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