Wall Street stocks jumped again and the FTSE 100 rose as investors snapped up big tech and sold government bonds and the dollar in response to the ongoing US presidential election.
Prior to the election, investors had bet that a strong Joe Biden victory would lead to a big stimulus package that would encourage growth. They hoped this would allow bond yields to rise and encourage a pivot towards more unloved sectors of the stock market such as financials.
However, the election is much closer than polls predicted, with the Democrat Biden leading incumbent Donald Trump only slightly.
Analysts said the close result means both strong stimulus and tougher regulation are less likely. This in turn has boosted “growth” stocks such as the big US tech companies.
US stocks jumped again today at the open, with the tech-heavy Nasdaq rising 2.6 per cent after a four per cent rise yesterday. The S&P 500 rose two per cent while the Dow Jones climbed 1.7 per cent.
The UK’s FTSE 100 climbed 0.5 per cent to 5,911 points, a roughly two-week high. It rose less strongly than its European peers because of a stronger pound, however.
Sterling soared 1.1 per cent to $1.308 as the dollar fell and after the Bank of England injected £150bn into the flagging economy. A higher pound makes the overseas earnings of FTSE 100 firms worth relatively less.
US stocks climb as election sparks rethink
“US stocks continue to ride the unwinding of ‘blue wave’ bets, sending big-tech and healthcare stocks sharply higher,” said Edward Moya, senior market analyst at currency firm Oanda.
“It seems Congress will be divided.” Moya said that means “Wall Street does not have to plan for corporate tax hikes, single-payer healthcare, sweeping clean energy initiatives, and massive infrastructure spending.”
The “reinflation trade” – bets on higher growth and inflation – was also unwinding in other markets. The dollar fell 0.8 per cent against a basket of currencies.
Meanwhile, longer-dated government bonds, which benefit from a strong growth outlook, fell back.
Markets were awaiting the latest US Federal Reserve decision this evening. The central bank is not expected to launch more stimulus, although it could give a hint about the direction of policy.
FTSE 100 boosted by fresh stimulus
UK stocks were aided by the Bank of England’s latest stimulus package, combined with a U-turn from chancellor Rishi Sunak, who said he would extend the furlough job support scheme until March.
Chris Beauchamp, chief market analyst at trading platform IG, said: “The BoE’s outlook for the UK economy is understandably grim, prompting the move towards more QE.
“But as in the US the real boost will come from fiscal stimulus. And at least here there is some good news thanks to the chancellor’s decision to extend furlough.”