European stocks rallied yesterday despite the US election outcome being clouded in uncertainty with the possibility that it could end up in court.
Wall Street also soared higher, with the tech-heavy Nasdaq jumping 4%, as both President Donald Trump and Democratic challenger Joe Biden still had a path of victory with a handful of states still up for grabs.
If the presidential race was still up in the air, it was increasingly clear that Democrats won’t gain decisive control in Congress, which analysts said helped fuel the rally as it reduced the chances of major tax hikes if Biden does eventually win.
The Dow was up 2.4% in late morning trade while the broader S&P 500 rose 2.6%.
European stock markets, which opened sharply lower after President Donald Trump said he would go to the Supreme Court to dispute the US vote count, turned higher in late morning deals and then joined the rally after Wall Street opened for business.
London’s FTSE-100 index rose 1.7% to 5,883.26 points as the pound shed 0.6% against the dollar.
In the eurozone, the Frankfurt stock market added 2.0% at 12,324.22 points and Paris climbed 2.4% at 4,922.85 points. The EURO STOXX 50 edged 1.9% up to 3,157.02 points.
The euro was down less than a tenth of a percent versus the dollar, while oil prices surged over 2%.
Asian indices mostly closed up but that was ahead of Trump declaring he would dispute the election.
The US election was plunged into chaos early Wednesday as Trump prematurely declared victory and sought Supreme Court intervention to stop vote-counting – even as Democratic rival Biden voiced confidence in his own chances.
“With Donald Trump already claiming victory even though millions of votes are still uncounted, investors may have to belt up and brace themselves for some volatile sessions of trading ahead,” noted Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.
In a divisive election cast under the shadow of the coronavirus pandemic that has claimed more than 230,000 lives in the United States, Trump appeared to have avoided a Democratic wave predicted by some polls but he still needs key states to secure another four-year term.
“The polls got it wrong,” said OANDA analyst Edward Moya.”Wall Street hoped for election certainty and what they will end up getting over the next couple days is recounts and lawsuits.”
Biden’s campaign slammed Trump’s threat to try to stop the election vote count as “outrageous”, saying its legal team was ready to prevent such an “unprecedented” act.
Before yesterday’s shock turn of events, world equities had rallied this week as traders piled bets on Biden winning, with opinion polls showing him with a big national lead though with slim advantages in battleground states.
While a failure for Biden and the Democrats would jolt markets, the general consensus is that whoever wins will still push through a major stimulus package for the struggling US economy as it battles the virus.
Although there is much uncertainty, market analyst Joshua Mahony at IG said the stocks rally Wednesday is an indication that some investors are pleased by the certainty that there won’t be a sweep by Democrats.
“The gains we are currently seeing for stocks this afternoon do highlight that the prospect of a Biden presidency without full control of Congress could take tax hikes off the table,” he said in a note to clients.
“Markets are to some extent reversing the pricing in of the ‘blue wave’. We have better support for likes of healthcare and technology,” said Jonathan Stubbs, equity strategist at Berenberg.
“We would interpret the outperformance of the Nasdaq as possibly a divided government, less fiscal stimulus, and more stay-at-home environment as Covid-19 cases rise,” said Matthias Scheiber, global head of multi asset portfolio management at Wells Fargo Asset Management.
Among individual movers, German online fashion retailer Zalando jumped 4% after it confirmed the increased guidance it gave last month.
Britain’s Marks & Spencer surged almost 5% after encouraging performance in its food business but reported the first loss in its 94 years as a publicly listed company.