As election results are awaited in key states of the US, stock futures fluctuated in early morning trades. Wall Street is keenly awaiting the results as the presidential elections are hinting at a tight contest in battleground states.
Dow Jones futures initially climbed over a 100 points and later dropped by 300 points. On the other hand, the blue-chip average has moved up by more than 500 points on Tuesday night, and this is the best closing for the index since July.
Even as S&P futures made initial gains, it later fell by half a percent as Trump and Biden were headed for a tight race in several battleground states. While Trump was expected to win Florida that gives him 29 electoral votes, he needs to win both Iowa and Ohio in order to keep his chances intact. Some other states, that were heading for a tight race included Michigan, Wisconsin, Pennsylvania and Georgia.
Biden sealed his chances in California, Oregon and Washington earlier this day. Before that, he made good gains in Colorado, Columbia, New Mexico, New York, New Hampshire, Rhode Island, New Jersey, Virginia, Vermont, Maryland, Delaware and Connecticut. On the other hand, Trump managed to pull off Utah, Idaho, Missouri, Kansas, Louisiana, Nebraska, North and South Dakota, Wyoming, Kentucky, West Virginia, South Carolina, Oklahoma, Tennessee, Mississippi, Arkansas and Alabama.
Markets had a mixed reaction to the initial results, and Nasdaq futures were up 2.7% in early trades on Wednesday. When news started coming in that Trump is finding it difficult in Florida, the futures fell slightly as many investors feel that Democratic win could lead to a stimulus package in 2021.
Nasdaq traders believe that they need to maintain the status quo in order to see some stability in the markets and there will be less regulation on large tech companies in this manner. When it comes to offshore markets, Chinese Yuan dropped nearly 1% ahead of US election results as many investors feel that Biden may not restart a trade war with China like Trump. However, as Trump stayed competitive in the election race, the currency fell by some margin in late-night trades.
Even the betting market is signalling that Trump may retain his power, and this is the reason that Yuan is not in a mood to extend gains during the election season. Stock markets have usually done well on most Election Days, and this was the second-best Election day for the markets in recent years. According to market analysts, this is the fifth time in a row that stocks closed high on Election Day. In the last ten elections, the markets were down only on 2 occasions on Election Day.
S&P 500 made a huge loss last week as it fell by more than 5% in one week. This was the worst fall for the markets ever since the covid epidemic began in March. However, the rally on Tuesday helped it to recover at least half of the loss made during last week. Many investors are hopeful that this will finally end the uncertainty about various things hanging in the markets since the last few months.
Looking into the trends of Wall Street in the last few days, analysts are of the opinion that there may not be a contested election result this time and investors are expecting the results to be clear. However, if the results are close and it goes to the stage of a contested election, markets can again turn volatile in no time. It is time to be cautious about market moves as things will keep changing with every news update coming to the market about the elections.
The biggest outcome of the elections for the market will be the stimulus package that is pending for many months. However, as the elections are now over and results are awaited, markets may again try to focus back on economic factors without worrying about political uncertainty.
Markets are watching if Biden can manage a victory along with taking control of the Senate. In this situation, it will pave the way for a huge stimulus package, and this can give a big boost to the economy in the short term. Especially, the infrastructure sector, along with small and medium scale industries, may get more benefits with such a package coming from the Democrats.
On the other hand, a victory for Trump will mean that the status quo will be maintained and there will be a package of lesser size available to the market. Apart from the election results, investors are also watching the Federal Reserve meeting that will announce a decision on rate policy on Thursday. In the earlier meetings, the Fed had resorted to keeping interest rates at all-time lows, and this helped market sentiments in the positive direction since the pandemic started in March. Along with that, the Fed had also forcefully stepped into the bond market, which was cheered by the markets.
Another worrying factor for the markets is the rising number of coronavirus cases across the country. The last one week saw record numbers of close to half a million, and this is not great news for several businesses that are afraid of another lockdown. Already things are headed in this direction in several European countries, and many countries have entered the second wave of lockdown that has impacted businesses negatively in the last one week.
If a similar thing happens in the US, markets may go back to March lows, and it will take a lot of effort by the Fed to boost the sentiment. The markets have waited for a long time to see some big news from the Federal government, but it was delayed due to elections.
However, investors are now expecting some big efforts to come in before January so that they can be prepared to handle the second wave of the pandemic if it strikes the country. Investors are watchful about the elections and other updates regarding the Covid cases. In this situation, Wall Street may see high levels of activity in the next few weeks.