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6 November 2020

Election week

Par PRATTE

 

Market Brief

After recording its worst month since March, Wall Street rebounded Monday on the eve of the US election. The Dow ended the session up 1.60%, the NASDAQ gained 0.42% while the S&P 500 advanced 1.23%. “The decline had been really big and fast and the markets were oversold, which led to buying moves today,” says Gregori Volokhine.

Markets also opened strongly on Tuesday; the Dow gained 650 points, the S&P 500 2.2%, and the NASDAQ 2%. Facebook, Amazon, Netflix, Microsoft, and Apple all opened up 1%. “Ultimately, the markets want clarity, and the main threat to risk assets this week is the emergence of a contested election, so if races are tight enough for campaigns to sue to halt or extend recounts, expect a reversal of this morning’s rally,” Tom Essaye, founder of The Sevens Report, wrote in a note.

Wall Street finally closed the session sharply higher as investors hoped the results would be clear and decisive without being disputed. The Dow climbed 700 points midway through the session to finish with gains of 554 points. The S&P 500 closed up 1.8% and the NASDAQ was up 1.9%.

“The key inflection point for markets will be whether the government — be it Biden- or Trump-led — is divided,” said Peter McCallum, rates strategist at Mizuho International Plc in London. “As things stand, this is the most likely outcome, hence stocks being a little lower and the Treasury curve bull flattening.”

The three major indexes opened Wednesday session higher; the Dow gained 400 points, the S&P 500 1.9%, and the NASDAQ 2.6%.

“I think the big news for the markets right now at least as it looks preliminary is that there’s not going to be a blue wave, which is generally supportive for markets,” said Mike Lewis, managing director of U.S. equity cash trading at Barclays, on CNBC’s “Squawk Box.” “I think that the outlook going forward for markets is this is going to be more about policy and the Fed than it’s going to be about politics, which is a good thing for markets.”

Tech stocks allowed the indexes to maintain their lead Wednesday as investors rushed to these stocks due in part to their strong earnings performance and resiliency in the case of new economic restrictions. Facebook, Amazon, Apple, Netflix, Alphabet and Microsoft all gained 3% at the open. However, “The market had clearly positioned itself for Biden by selling technology stocks and buying stocks that would have benefited from a major economic support plan,” notes Gregori Volokhine of Meeschaert Financial Services. “The scales are returning to balance now that Biden’s victory is much more random,” he said.

The results surrounding the composition of the Congress seemed to satisfy investors on Wednesday. Indeed, the Republicans appeared to retain control of the Senate and the Democrats, meanwhile, retained control of the House of Representatives.

All three major indexes continued their momentum on Wednesday, despite uncertainties surrounding the election results. The Dow Jones jumped 367.63 points, or 1.3%, to 27,847.66, reaching over 800 points on Wednesday. The S&P 500 finished with gains of 2.2%, or 74.42 points, to 3,443.44 after gaining up to 3.5% earlier in the day. Investors flocked to tech stocks that performed well for most of this tumultuous year. The NASDAQ jumped 3.9%, or 430.21 points, to 11,590.78.

Tech stocks all posted gains on Wednesday; Apple and Microsoft gained 4%, Facebook rose 8.3%, while Alphabet and Amazon both jumped more than 6%.

So why have the markets reacted so well in the last sessions despite the uncertainty over who will win the US election? A few weeks before the election, several investors had bet on a “blue wave” highlighted by several polls estimating that Biden would win the election. The victory meant the implementation of a huge stimulus package that would have boosted value stocks, small caps, and alternative energy.

So, tech stocks became less attractive, as concerns of tighter regulations and higher taxes were to be expected if Democrats won the election. Healthcare stocks had also retreated in recent weeks over fears Democrats could expand the Affordable Care Act while approving new regulations.

However, the trend of those “dumped” stocks regarding a possible “blue wave” reversed on Wednesday. Healthcare stocks jumped 4.5%, and tech stocks rose 3.8%. Thus, the Congress divided between Republicans and Democrats offer hope of a check on certain regulations of tax policies and bills announced by each of the parties.

“It seems like the market will go up regardless of who wins [the White House], but it will go up for different reasons,” said Sam Stovall, chief investment strategist at CFRA. “Technology will do better if the threat of regulation and breakup is dissolved, whereas industrials and materials might do better if there’s going to be an economic stimulus with infrastructure spending.”

On Thursday, Wall Street continued to perform well early in the session, buoyed by hopes that the winner of the US presidential election would soon be determined. The Dow gained 423 points, or 1.5%, the S&P 500 climbed 1.6%, and the NASDAQ rose 1.8%.

In addition, the three main indexes have accumulated significant weekly gains since Monday. The Dow has risen more than 6% since the start of the week while the S&P 500 and NASDAQ gained 7.1% and 8.2% during the same period.

This good performance continued throughout the day, with the Dow closing 542.52 points higher, the S&P 500 rising 1.95% and the NASDAQ Composite 2.6%. It was the first time Thursday since 1982 that the Dow and S&P 500 have risen at least 1% in four consecutive sessions.

Tech stocks also continued to post strong gains on Thursday. Facebook and Amazon both gained more than 2% while Netflix, Apple and Microsoft ended the session up 3%. Facebook’s stock has racked up gains of 12% this week, Amazon and Apple are up 9.4% and 9.3%, respectively, during this period as Microsoft has jumped 10.3%.

“It has been a colorful week as electoral uncertainty appears to have had a positive impact on the markets. The fact that the status quo remains in place for the Senate and Congress for the moment comforts investors as the two parties will have to make compromises,” said our president and portfolio manager Philippe Pratte.

Markets opened flat on Friday as investors remained cautious assessing the latest US unemployment data which turned out better than expected while seeking clarification on the presidential election results.

 

 

 

Pratte Portfolio Management is a firm registered with the Autorité des marchés financiers (AMF) and the Ontario Securities Commission (OSC).

Intended to provide general information about markets and securities and not to meet your specific needs, this report is the result of the author’s only work. The opinions (including any recommendations, if any) expressed in this report are those of the author only and do not necessarily represent those of Pratte Portfolio Management and do not constitute securities investment advisory activities designed to meet your specific needs.

The information contained in this report is derived from sources believed to be reliable, but the accuracy and completeness of this information can not be guaranteed and, in providing the information, the author and Pratte Portfolio Management assume no liability whatsoever. This information was current as of the date indicated in this bulletin, and neither the author nor Pratte Portfolio Management assumes any obligation to update it or to report any new developments with respect to this information. This report is intended for distribution in jurisdictions where the author and Pratte Portfolio Management are registered for trading in securities. Any distribution or diffusion of this report in another territory is forbidden. The author, Pratte Portfolio Management, its affiliates and their respective directors, officers and employees, and the companies with which they are associated may, from time to time, hold securities referred to in this report. 

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