Daily Insights

US markets opened sharply higher despite the lack of a winner. Following a solid close for US equities, the markets opened strongly in the green this morning. Investors appear to be pricing in increasing odds of a divided government, which may take major tax increases and some regulatory risk off the table. However, the White House and Senate races are both too close to call. Market participants can soon turn their attention back to stimulus talks, COVID-19 numbers, vaccine progress, and earnings, but for the next day or two, all eyes will be on the key swing states yet to be decided, particularly Michigan, Pennsylvania, and Wisconsin.

• European markets are mostly higher through midday trading.
• The Asian market was mostly higher overnight, with Japan and Taiwan up over 1%.

Election 2020 update. The US election remains too close to call as of this morning, with the outcome coming down to key battleground states that are still tallying their ballots. The Senate race remains undecided as well. Republicans have held several key states, suggesting that Republicans appear to be the favorite to retain a majority in the Senate.

Treasury yields fall. The 10-year Treasury yield fluctuated overnight, initially climbing but beginning to plunge around 7 p.m. ET as early results signaled a tight presidential race and markets began to price in increased election uncertainty. The 10-year yield dropped to as low as 0.76% at around 3 a.m. ET Wednesday morning, but has been climbing modestly since.

Market signals to watch. Markets appear to be pricing in a divided government this morning rather than a Democratic sweep. Among the clues:

• Technology stocks are rallying on reduced regulatory risk.
• Healthcare stocks are rallying on the likelihood of the status quo.
• Renewable energy stocks are weak.
• Financials are weak with yields lower.

The stimulus is still likely. While a divided government has prevented another COVID-19 fiscal stimulus package from being passed, we believe the dynamic may change post-election. A split Congress likely would result in a smaller package, but we believe there is enough bipartisan support for a potential deal near $1 trillion, even if the Senate stays in Republican control, regardless of who occupies the White House. But, it may have to wait until early 2021.

Rally time for stocks. During an election year, November is the best month of the year for the S&P 500 Index, with a 1.5% average return. December is the third-best month. Once the uncertainty of the election is over, stocks tend to rally into the year-end. Find out more on the LPL Research blog.

Technical update. Markets are higher but volatile in early trading amid a lack of clarity on the election. Investors are flocking to stay-at-home technology stocks, pushing the NASDAQ up more than 2%, while the S&P 500 and Dow hold smaller gains. The small-cap Russell 2000 Index is lower. 3200 remains the key support level to watch for the S&P 500.

COVID-19 news. New COVID-19 cases in the United States rose 18% on Tuesday, with the seven-day average weekly increase maintaining its trend near 20% (source: COVID Tracking Project). Hospitalizations are edging higher, with increases of more than 10% in Florida, Michigan, and Ohio. The positivity rate of tests has nearly doubled to more than 9% in the past month, as reported by Johns Hopkins.

 

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