Stocks are rallying again on Wednesday, but only after spinning through an election night dominated by surprises and sharp swings.
The S&P 500 was up 3.3% and on pace for its best day in seven months, as of 12:20 p.m. Eastern time. The Dow Jones Industrial Average was up 737 points, or 2.7%, at 28,217, and the Nasdaq composite jumped 4.3%.
Analysts said the gains came as markets saw the upside of political control in Washington remaining split between Democrats and Republicans. But it followed up on a tumultuous overnight session where U.S. stock futures and bond yields swung up, down and back again as results showed a race that’s still too early to call between President Donald Trump and former Vice President Joe Biden. It’s unclear when a winner for the presidency can emerge.
Markets are focusing just as much on control of the Senate, where prospects for a Democratic takeover appear to be dropping after Republicans held onto seats considered vulnerable. That in turn lowered the prospects for the tax increases and tighter regulations on businesses that investors saw coming in a potential Democratic sweep, even if it also hurts the likelihood of a big stimulus effort for the economy.
“The first information that people are digesting is that a split government is OK, and we can deal with this,” said Melda Mergen, deputy global head of equities, Columbia Threadneedle. “No big changes are expected anytime soon on the policy side.”
She cautioned, though, that the initial moves for the market may not last. “It’s a very quick reaction without knowing the final results,” she said. “It’s emotional rather than rational.”
Much of Tuesday’s strength for Wall Street was due to big gains for technology stocks. Investors have increasingly seen these stocks as some of the safer bets in the market, able to grow their profits even in a pandemic as more of daily life shifts online.
They don’t need a big stimulus effort for the economy as much as other companies, and the likelihood of Washington approving such a package dropped with the chances of a Democratic sweep. That led to the much better performance for the tech-heavy Nasdaq over other indexes. Microsoft, Amazon, Facebook and Google’s parent company all rose at least 5%
Other areas of the stock market, where profits are more dependent on the strength of the economy, lagged behind. Financial stocks in the S&P 500 rose 0.3%. Companies that make construction materials and could have benefited from a big infrastructure plan under a Democratic sweep were falling.
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