Stocks Rally for Second Day Before Election Result: Markets Wrap

Treasury yields dropped and the dollar traded near a one-month high.

04 Nov 2020, 02:38 PM IST

Stocks Rally for Second Day Before Election Result: Markets Wrap

A voter deposits a ballot into an Official Ballot Drop Box in Washington. (Photographer: Stefani Reynolds/Bloomberg)

(Bloomberg) -- U.S. stocks capped the biggest two-day rally since September, led by a surge in bank shares as Treasury yields spiked on speculation that Congress will deliver a spending bill once the election is decided. The dollar weakened and crude oil increased.

The S&P 500 climbed 1.8%, bringing the two-day increase to 3.2%. Financial firms rallied 2.2%, also the most since September. Democratic nominee Joe Biden leads President Donald Trump in the final polls, with some investors speculating his victory would bring a surge in federal spending. Meanwhile, Alibaba Group Holding Ltd.’s U.S.-traded shares tumbled 8.1% after China halted the initial public offering of Ant Group Co., in which Alibaba owns about a one-third stake.

Treasuries fell and a gauge of the dollar dropped the most in more than three weeks as a risk-on mood prevailed. Oil extended gains after jumping on Monday on increasing signs OPEC+ will delay a planned easing of output cuts.

“It’s a reflection of the market’s belief there is not going to be a whole lot of uncertainty after election day,” said Matt Stucky, portfolio manager for equities at Northwestern Mutual Wealth Management Co. “The worst outcome for election day is a really uncertain winner scenario where it’s going to take weeks and a lot of legal back and forth before the decision is ultimately made.”

While trades reflecting a Democratic sweep held firm, betting markets aren’t convinced. One gauge slipped to just over 50% odds of the so-called Blue Wave -- that Democrats oust President Trump and take Congressional majorities. Traders hedged prospects of post-vote volatility, driving a measure of expected swings in China’s yuan to its highest level in more than nine years.

”The ghost of 2016, from both polling and market expectations, looms large,” Michael Purves, chief executive officer of Tallbacken Capital Advisors, wrote in a note.

Elsewhere, the benchmark credit derivatives index measuring the perceived risk of U.S. high-yield companies gained by the most in almost two months, implying lower probability of default.

Markets are reflecting more optimism following weeks of speculation that a contested election outcome may produce no clear winner for some time and roil markets. Polls continue to indicate that Biden is ahead, though the race looks tight in some battleground states, some of which are seeing virus cases soar.

“The market’s upward bias, and underlying leadership of energy, industrials, and materials sectors, imply a Blue wave that incorporates the potential for the passage of stimulus and infrastructure spending bills,” said Sam Stovall, chief investment strategist at CFRA Research.

In Europe, mining shares climbed, helped by the slumping dollar. Banks rallied after BNP Paribas SA joined its European peers in posting lower-than-expected bad-loan provisions from the pandemic.

These are some key events coming up:

EIA crude oil inventory report on Wednesday.
Fed policy decision on Thursday.
The key U.S. non-farm payrolls report is due Friday.
Earnings are due this week from companies including Alibaba Group Holding Ltd., AstraZeneca Plc, Nintendo Co., Macquarie Group Ltd. and Toyota Motor Corp.

These are some of the main moves in financial markets:

Stocks

The S&P 500 Index jumped 1.8% to 3,369.16 as of 4:05 p.m. New York time, the highest in a week on the largest surge in more than four weeks.

The Dow Jones Industrial Average surged 2.1% to 27,480.03, the highest in more than a week on the biggest jump in 16 weeks.

The Nasdaq Composite Index increased 1.9% to 11,160.57, the largest climb in more than three weeks.

The MSCI All-Country World Index surged 1.8% to 567.82, the highest in a week on the biggest jump in almost four months.

Currencies

The Bloomberg Dollar Spot Index decreased 0.5% to 1,166.86, hitting the lowest in a week with the first retreat in a week and the largest dip in more than three weeks.

The euro climbed 0.6% to $1.1713, the first advance in more than a week and the biggest increase in five weeks.

The Japanese yen strengthened 0.2% to 104.55 per dollar, the largest gain in a week.

Bonds

The yield on 10-year Treasuries climbed four basis points to 0.89%, the highest in five months.

The yield on 30-year Treasuries increased five basis points to 1.66%, the highest in more than a week.

Germany’s 10-year yield gained two basis points to -0.62%, the highest in a week on the biggest rise in more than a week.

Commodities

West Texas Intermediate crude climbed 2.8% to $37.83 a barrel, the highest in a week.

Gold strengthened 0.6% to $1,907.13 an ounce, the highest in a week.