2020-11-04 22:05
publication
2020-11-04 22:05
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Even though the worst pre-election fears have been confirmed, Tuesday’s session on New York Stock exchanges brought strong gains. It is worth remembering that Wall Street’s reaction was in contradiction to what was happening in the debt market.
Nearly 24 hours after the end of the vote, it is still unknown who will become the president of the United States. Even in the morning it seemed that Donald Trump would remain one. But later, in favor of Joe Biden, the votes in Wisconsin and Michigan were counted – the key swing states that could give a Democrat equal to 270 electoral votes when added to the remaining states.
Except that President Trump accuses the Democrats of fraud and demands a recount in Wisconsin and a suspension of the counting of votes in Michigan. Doubts are also raised by the strange results of counting the ballot papers sent by post – in some “parties” Biden got 99% of the votes cast. Therefore, even if Joe Biden’s victory is announced tonight, the Republicans will challenge this result in the courts.
As a result, we get something that, in the opinion of analysts, has worried investors the most in recent days – the contested elections. Just like 20 years ago, it is only in December that we can find out who will take the reins of the superpower. Moreover, the Democrats most likely failed to take over the majority in the Senate, which will make it difficult to push through the large fiscal spending package expected by the markets.
Therefore, no one would be surprised if Wednesday’s session brought significant drops of stock indices. Instead, we have seen downright euphoric gains. The Nasdaq Composite climbed 3.85%, climbing 11,590.78 points. S & P500, after an increase of 2.20%, reached the level of 3,443.43 points.
During the day, the Dow Jones rose by nearly 3%, which would be the strongest post-election gain since 1900, when Republican William McKinley won by 3.33%. Ultimately, the DJIA ended the session with an increase of 1.34%, remaining below 28,000 points.
However, it is worth paying attention to massive divergence between the stock market and the debt market. The latter reacted as “should”. Ie. bond prices rose, reflecting an increase in risk aversion or a significantly smaller chance of a big fiscal package. Yield of 10-year US government bonds fell by as much as 13 bp, to 0.7650%. A fall in yields means an increase in the price of a bond.
Analysts have tried very twistedly to explain the market’s reaction to this and not another. On the one hand, attention was drawn to the strong gains in the shares of companies in the medical sector, which would be a reaction to the election of Joe Biden. At the same time, the quotes of internet giants went up strongly. Facebook shares went up by 8.3%, Alphabet by 6.1% and Amazon by 6.3%. This was explained by the defeat of the Democrats in the Senate, which will make it harder for politicians to get to the skin of these digital monopolists.
In the shadow of big politics, economic data was somewhat forgotten, with two major disappointments. First, the ADP report showed that in October 365,000 new jobs were added to the private sector. jobs, i.e. half less than in September and much below the expected 600,000. And then the ISM index for the services sector slightly disappointed, slipping from 57.8 points. up to 56.6 points against expectations of 57.5 points. The data is not weak in itself, but it does suggest that the pace of recovery from the coronavirus is starting to slow down.
Krzysztof Kolany
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