Uncertainty is the enemy of markets. Investors are hoping that a decisive winner emerges sooner rather than later. Crucially, that would mean the nightmare scenario of a contested election is avoided.
Several key races remained too early to call Wednesday morning, however.
“Significant bias in one direction or another means less likelihood of a contested election, which I think probably [is] the biggest risk factor for the market,” Charles Schwab chief investment strategist Liz Ann Sonders told CNN Business.
Investors have bet that former Vice President Joe Biden will emerge victorious. But riskier assets like stocks are expected to rally no matter who wins.
David Joy, chief market strategist at Ameriprise, said the big Nasdaq gains could reflect the view that many big tech firms and other stocks that benefit from rapid growth would do better under President Donald Trump than stocks that get a boost from a general strengthening of the economy.
Still, strategists are cautioning against drawing early conclusions.
“The night is young,” Sonders said.
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.
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 to robust fiscal stimulus and infrastructure spending — two things markets crave. However, it could also lead to higher taxes that would cut into corporate profits.
Looking ahead, the Federal Reserve meets Wednesday, though the central bank will not make any announcements about policy until Thursday.
— CNN’s Matt Egan and Anneken Tappe contributed to this report.
