Stocks Rally as Election Results Provide Comfort: Markets Wrap

(Bloomberg) -- U.S. equities jumped as investors moved past the hurdle of uncertainty presented by the midterm elections and embraced an outlook for Washington gridlock.

Riskier assets were in favor after Democrats won control of the House of Representatives and Republicans held the Senate. The outcome dims chances that Donald Trump’s signature tax cuts will be reversed, but also makes less likely major fiscal initiatives that might have pushed up interest rates. The dollar slid and Treasuries climbed.

Tech stocks, which absorbed the brunt of October’s sell-off, led gains as the Nasdaq 100 surged more than 3 percent. Amazon.com and Netflix were among the best performers. Health-care shares rallied as investors saw reduced risk for major changes to the health system, while marijuana stocks gained after Michigan voted to permit recreational use and Attorney General Jeff Sessions -- a critic of legalization -- resigned. A gauge of volatility expectations declined.

“We’ve gotten the broad uncertainty out of the way,” said Chad Morganlander, senior portfolio manager at Washington Crossing Advisors.

The outcome largely matched polling going into the vote, and it’s likely investors will now refocus their attention on other issues. The biggest macro theme remains the trade war after recent warnings from major names including the IMF’s Christine Lagarde and former U.S. Treasury Secretary Hank Paulson. Meanwhile, the Federal Reserve is set to decide interest rates Thursday, and Theresa May is pushing on with efforts to agree a Brexit deal.

Elsewhere, European stocks rallied and Asian shares were mixed. Shares of Spanish banks surged after they escaped paying billions of euros in back taxes. The euro rallied as data showed German industrial output picked up steam in September.

Coming Up

• The Fed’s next rate decision is Thursday. While policy makers are expected to leave borrowing costs unchanged, observers will be looking for any signals on how much more tightening remains.
• China trade data also come Thursday, with gauges of consumer and factory prices expected on Friday.

Terminal users can read more in our Markets Live blog.

And these are the main moves in markets:

Stocks

• The S&P 500 Index rose 2.1 percent as of the close of trading in New York; the Nasdaq Composite added 2.6 percent; the Dow Jones Industrial Average rose 2.1 percent.
• The Stoxx Europe 600 Index rose 1.1 percent.
• The MSCI Emerging Market Index rose 0.9 percent.

Currencies

• The Bloomberg Dollar Spot Index slipped 0.1 percent.
• The euro climbed 0.1 percent to $1.144.
• The Japanese yen rose 0.1 percent to 113.52 per dollar.
• The British pound strengthened 0.3 percent to $1.3135.

Bonds

• The yield on 10-year Treasuries fell one basis point to 3.22 percent.
• Germany’s 10-year yield rose one basis point to 0.44 percent.
• Britain’s 10-year yield was little changed at 1.53 percent.

Commodities

• West Texas Intermediate crude fell 1 percent to $61.59 a barrel, its eighth consecutive decline.
• Copper rose 0.4 percent to $2.743 a pound.
• Gold slipped 0.2 percent to $1,225.37 an ounce.

--With assistance from Jeremy Herron, Andreea Papuc, Christopher Anstey, Joanna Ossinger, Samuel Potter, David Wilson and Natasha Doff.

To contact the reporters on this story: Randall Jensen in New York at rjensen18@bloomberg.net;Vildana Hajric in New York at vhajric1@bloomberg.net

To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Brendan Walsh

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