The U.S. stock market roared into election day, sending the Dow Jones Industrial Average over 550 points higher.
The Dow climbed by more than 680 points, or around 2.5 percent Tuesday morning, before retreating from their highs.
With two hours of trading left, the Dow rose 552 points or 2.05 percent. The Nasdaq Composite clmbed 1.85 percent. The S&P 500 is also up 1.8 percent. The small-cap Russell 2000 is up 2.91 percent, which looks a lot like a bet on stimulus legislation.
Ten of the 11 sectors of the S&P 500 were up. The Energy sector was down 0.75 percent. Industrials was the best performing sector, rising 2.9 percent, led by the road and rail subsector and the shipping subsector. Maybe it is finally infrastructure week.
The Financials sector was the second-best performing, up 2.3 percent for the day, lead higher by the bank component’s 2.7 percent gain and the consumer finance subsector’s 2.9 percent gain. The KBW Nasdaq Bank Index, which tracks the stocks of the biggest banks, rose 2.7 percent.
Donald Trump’s victory for 2016 set off an explosive rally in stocks, defying widespread predictions that he would lose or that if he won it would cause the market to crash. Financials were the best performing sector on the day after election day.
Many of the big Wall Street firms have Joe Biden as the runaway favorite to win the presidency, just as they had Hillary Clinton the favorite four years ago. Morgan Stanley said in a note to clients Tuesday that they estimate a 76 percent chance that Biden wins and the Democrats take control of the Senate. They estimate just an eight percent chance that Trump wins and GOP holds the Senate. The Wall Street firm gives just a thirteen percent chance of a mixed result with Biden winning but the GOP holding the Senate.
Biden has raised tens of millions of dollars from Wall Street. During his time as a U.S. Senator from Delaware, Biden earned the nickname “Plastic Joe” for his willingness to promote legislation friendly to credit card issuers, including a law that made it harder for bankrupt customers to get debt relief.
Most analysts think the economy and the stock market could get a big boost if Democrats sweep the election. A unified government would be more likely to quickly pass a stimulus bill, likely giving stocks a short-term boost and ameliorating the drag from new restrictions aimed at stemming the pandemic’s surge.
Biden’s immigration and visa programs would likely import enough workers to ease wage pressure, boosting corporate profits by lowering compensation costs. An increase in foreign workers also generates new customers for U.S. companies, especially U.S. banks and large retailers. Biden is viewed as likely to lift tariffs on China, allowing U.S. companies to send more jobs to cheaper overseas labor markets.
Biden has promised a rush of higher taxes and new regulations, including climate change schemes that would make energy more costly and damage U.S. manufacturing.
Note that not everyone on Wall Street is convinced of a Trump victory. Based on anecdotal evidence and no hard data, quant traders, in particular, appear to be skeptical that Biden will win.