Business

US Stock Falls On Fears Of A Contested Election

Interestingly, while awaiting the American presidential election result, US stock futures swung wildly early Wednesday as the prospects of a quick, decisive result to the election faded and President Donald Trump made baseless claims about the vote, leaving investors on edge.

Dow (INDU) futures plunged more than 400 points, or 1.5%, after President Trump prematurely claimed victory and said he would go to court to prevent legitimate votes from being counted.

Stocks later pared back losses but remain jumpy in premarket trading. Dow futures were down just 0.1% at 3:30 a.m. ET, while S&P 500 futures rose 0.6%. The Nasdaq Composite, an outlier throughout the night, surged 2.5%.

Uncertainty is the enemy of markets. Investors had hoped that early results would point to a clear winner sooner rather than later, avoiding the nightmare scenario of a contested election.

Speaking at the White House early Wednesday, Trump attacked legitimate vote-counting efforts, suggesting attempts to tally all ballots amounted to disenfranchising his supporters. He also said he had been preparing to declare victory earlier in the evening, and baselessly claimed a fraud was being committed.

Investors had bet that former Vice President Joe Biden would emerge victorious. But riskier assets like stocks are expected to rally regardless once the uncertainty lifts and it becomes clear how power will be divided in Washington.

David Joy, chief market strategist at Ameriprise, said the Nasdaq gains could reflect the view that many big tech firms and other stocks that benefit from rapid growth would do better under Trump than stocks that get a boost from a general strengthening of the economy.

Still, strategists are cautioning against drawing early conclusions.

“We expect volatility to remain elevated,” Credit Suisse told clients early Wednesday. “Amid the lack of clarity, patience is required.”

The US dollar ticked up 0.4% against a basket of top currencies, while demand for benchmark 10-year US Treasuries rose, sending yields lower.

US stocks posted strong gains during regular trading hours on Election Day. Hopes that a Biden win would unleash more government spending to help the economic recovery have boosted stocks this week.

The Dow closed up 555 points, or 2.1%, higher, its best percentage gain since mid-July. The S&P 500 closed 1.8% higher, its best day in a month. The Nasdaq Composite finished 1.9% higher — its best performance since mid-October.

Investors are also closely watching the results in the race for control of the US Senate. If Democrats appear to win the majority of seats, that could pave the way for bigger fiscal stimulus.

Investors had been counting on lawmakers to agree on additional relief shortly after the election. Economists are worried about the fate of the US recovery ahead of a difficult winter as Covid-19 cases rise again.

“We know this economic challenge is coming,” Knightley said.

Looking ahead, the Federal Reserve meets Wednesday, though the central bank will not make any announcements about policy until Thursday.

Sahara Weekly

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