United States
A rally in mega-caps, especially technology, lifted equities Wednesday on tentative US election results. The Dow Jones industrial index gained 1.3 percent, the S&P 500 gained 2.2 percent, and the NASDAQ rallied 3.9 percent.
Mega-cap momentum stocks advanced as markets priced out expectations for a pickup in growth and a big fiscal stimulus package seen likely with a blue wave. Investors viewed election results as showing Democrats headed toward a narrow victory in the presidential election while Republicans retained control of the Senate. The prospect of split government suggested no change to existing tax policy, including low corporate taxes and low capital gains tax rates.
Small cap stocks and cyclicals lagged on expectation for more slow growth, while investors chose heavily-weighted mega-cap favorites like Facebook, up 8.3 percent, Apple, up 4.1 percent, Amazon, up 6.3 percent, Microsoft, up 4.8 percent, plus health care leaders including biotech Amgen, up 4.7 percent, and UnitedHealth, up 10.3 percent.
Among laggards, materials, financials, and industrials slipped. Caterpillar, the heavy construction equipment maker, fell 7.4 percent on disappointment over prospects for US fiscal stimulus and infrastructure spending. UnitedHealth was the Dow's best performer as the election outcome was seen killing prospects for meaningful legislative action on health care.
Among companies in the news, Biogen rallied 44 percent after positive FDA action on the biotech's Alzheimer's treatment. Meanwhile, Uber was a big winner, up 15 percent after California voters backed a measure to allow the ride-sharing company to treat its drivers as independent contractors.
These price data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil rose US$1.11 to US$41.06 while spot gold declined US$4.94 to US$1,902.19. The US dollar fell slightly against major currencies. The US Treasury 30-year bond yield dropped 13 basis points to 1.55 percent while the 10-year note yield fell 12 basis points to 0.77 percent.
Europe
A rally in growth stocks lifted equities Wednesday as the market let go of expectations for a Democratic sweep in US elections. The Europe-wide STOXX 600 rose 2.1 percent, the German DAX rose 2.0 percent, the French CAC gained 2.4 percent, and the UK FTSE-100 was up 1.7 percent.
Cyclical stocks lagged as the market saw the election outcome diminishing prospects for significant fiscal stimulus, as Democrats appeared unlikely to take control of the Senate, even if former Vice President Joe Biden wins the presidency. Growth stocks, especially technology, plus health care, led winners, while cyclicals, including oil & gas, banking, and basic resources, fell back.
Risk appetite also benefited from reports that UK authorities are preparing to roll out a Covid-19 vaccine as early as December. AstraZeneca rose 6.9 percent on the news. Another positive for risk appetite: expectations for the Bank of England to expand its asset purchase program at its policy council meeting Thursday.
Among companies in the news, UK retailer Marks & Spencer rose 4.9 percent after its first half decline in revenues was roughly a third smaller than markets expected, with food sales outperforming. Bpost, the Belgian postal service, rose 10.4 percent on an earnings beat and better guidance. Seco, the Swedish engineering consultant gained 7.1 percent on an earnings beat.
On the downside, Vestas Wind Systems, the Danish wind turbine maker, declined 3.5 percent despite an earnings beats amid disappointment over the Democratic showing in US elections. Dutch supermarket chain Royal Ahold Delhaize declined 2.0 percent despite earnings and revenues beats.
Asia Pacific
Major Asian markets posted mixed results Wednesday, with PMI survey data showing improved economic conditions across the region but the outcome of US elections clearly the main focus for regional investors. Trading hours in the Asia-Pacific region coincided with the closing of polls in the US and early returns indicating that it would likely take some time for results to be clear. Japan's Nikkei and Topix indices outperformed with gains of 1.7 percent and 1.2 percent respectively, but moves elsewhere were more subdued despite some intra-day volatility. The Shanghai Composite index closed up 0.2 percent, while Australia's All Ordinaries index closed flat on the day.
The Markit China PMI for the services sector increased from 54.8 in September to 56.8 in October, indicating that activity expanded for the sixth consecutive month and at the fastest pace since June. Other PMIs published Wednesday also showed conditions improved elsewhere in the region in October. The survey for India's services sector indicates that activity for the first time since May, with the survey's headline index increasing from 49.8 to 54.1, while the composite index advanced from 54.6 to 58.0. Meanwhile, the economy-wide PMI survey for Hong Kong and Singapore both showed a less pronounced contraction in activity, with the headline index rising from 47.7 to 49.8 for Hong Kong and from 45.1 to 48.6 in Singapore.
Looking ahead*
On Thursday in Asia/Pacific, Japanese composite PMI and Australian goods & services trade reports are scheduled. In Europe, the Bank of England policy decision is due as are reports on Swiss SECO consumer climate, German manufacturers orders, UK PMI construction, Eurozone retail sales. In North America, the big event will be the Federal Open Market Committee meeting and Fed chair press conference, plus reports on US jobless claims and US productivity and costs.
