Futures for U.S. stock benchmarks trader higher on Wednesday, even as the election race between President Donald Trump and former Vice President Joe Biden looked too close to call in a number of states.
The slow-rolling election tallies also come as the Federal Reserve kicks off its two-day policy meeting later Wednesday and investors brace for an update on private-sector employment for October.
How are stock benchmarks performing?
Futures for the Dow Jones Industrial Average YMZ20, +0.55% YM00, +0.55% were trading 117 points, or 0.4%, higher at 27,493; those for the S&P 500 ESZ20, +1.44% ES00, +1.44% were up 44.15 points, or 1.3%, at 3,406.25; while Nasdaq-100 futures NQZ20, +3.17% NQ00, +3.17% were surging 319.25 points to reach 11,585, a rise of 2.8%.
On Tuesday, the stock market closed sharply higher, with the Dow Jones Industrial Average DJIA rallying 554.98 points, or 2.1%, to 27480.03, its biggest one-day point and percentage gain since July 14. The S&P 500 SPX rose 58.92 points, or 1.8%, to 3,369.16. The Nasdaq Composite COMP rose 202.96 points, or 1.9%, to 11,160.57.
What’s driving the market?
A few key states now will determine the 2020 U.S. presidential race that has turned out to be far closer than pollsters and market participants had expected, with a number of states still counting votes Wednesday morning.
Vote counting in Pennsylvania, Michigan and Wisconsin was expected to stretch into Wednesday, with both candidates having a possibility to secure the necessary 270 electoral college votes to secure a victory. In Philadelphia, the counting of mail ballots continued through the night at the Pennsylvania Convention Center in Philadelphia.
Futures overnight saw violent swings as returns rolled in. Biden and Trump appeared confident as they addressed supporters separately in the wee hours of Wednesday.
However, stock futures took a decided turn lower overnight after Trump in a speech said that he believes he will win, and threatened to take the election to the Supreme Court, indicating the he would contest the election results if they didn’t favor him.
“We were getting ready for a big celebration. We were winning everything, and all of a sudden it was just called off,” Trump said. “We’ll be going to the U.S. Supreme Court, we want all voting to stop.”
A contested election could have long-term bearish implications for equities, harking back to substantial drops in the S&P 500 during the contest between former Vice President Al Gore and George W. Bush back in 2000.
Meanwhile, investors have been bidding up technology shares in thinly traded premarket action as Wall Street appears to revert to the investments that had helped to lead the market out of the depths of the coronavirus pandemic.
The election results so far also have diminished the likelihood of a so-called blue wave, where a Democrat takes the White House and the party takes control of both chambers of Congress.
So far, Democrats haven’t scored sufficient votes to achieve a so-called “blue wave,“ which many poll watchers had viewed as key to another round of fiscal aid for workers and American businesses.
“While we haven’t yet learned who the winner will be, we were reminded again that with all the 21st century technological advancements, the polling business and methodologies need to be revamped,“ wrote Peter Boockvar, chief investment officer at Bleakley Advisory Group, in a Wednesday research note, referring to early polling that pointed to more decisive win for Biden and the possibility of a Democratic sweeping victory in the Senate.
“As for the eventual outcome of this election, I’m keeping this conversation solely focused on policy, not personality. Regardless of the presidential winner, it does look like the Republicans will keep control of the Senate,“ Boockvar said.
Researchers at Wolfe Research, led by chief investment strategist Chris Senyek, said that the market may be trying to price in the possibility of a Biden win but a Republican Congress and a weakened prospect for more substantial relief to combat the coronavirus pandemic.
“A Biden/GOP Senate scenario appears to be getting priced in this morning,“ wrote Wolfe Research. “As we write, the U.S. 10-year yield has fallen by -11bps and NASDAQ-100 futures are up roughly +2%,” the team noted.
“Our sense is that this reflects expectations for a disappointing fiscal stimulus bill (GOP Senators want $500 billion-$1 trillion), while the Fed ramps up [quantitative easing] as an offset,“ they wrote.
Americans went to the polls Tuesday under the shadow of a resurging pandemic, with an alarming increase in cases nationwide and the number of people hospitalized with COVID-19 reaching record highs in a growing number of states. While daily infections were rising in all but three states, the surge was most pronounced in the Midwest and Southwest.
Meanwhile, the Fed is set to deliver is policy update at 2 p.m. Eastern on Thursday, a day later than usual due to the election.
On the U.S. economic front, investors will be watching for a monthly report on private employment from Automatic Data Processing at 8: 15 a.m. Eastern, a precursor to the closely watched October jobs report on Friday.
Separately, a report on the international trade deficit for September is due at 8:30 a.m., while a reading on the services sector from IHS Markit will be released at 9:45 a.m. will precede a more closely followed report from the Institute of Supply Management, the ISM services index, about 15 minutes later.