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By Sujata Rao, Tommy Wilkes and Lewis Krauskopf
LONDON / NEW YORK (Reuters) – A final result for the next US president is not yet known, but investors are back in "buy everything" mode two days after election day. They are counting on Republicans to keep control of the Senate and regulate bills, as well as the full support of the central bank.
Stocks rose 4.2% on the S&P 500 () since the close of trading on Tuesday and about 2% below the record high, while the Nasdaq () was just 1.4% below its record high.
Some analysts predict the rally will continue, especially if bond yields, which reversed dramatically after election day, remain low.
"There's room for another 10% rally, provided bond yields and earnings outlook stay where they are," said Michael Purves, CEO of Tallbacken Capital Advisors, in an email.
Democratic challenger Joe Biden was drawing closer to defeating Donald Trump in the battle for the US presidency, and there was little panic over the possibility of a controversial outcome that could land in court.
The disappointment in massive incentives seems to have been replaced by relief that without a Democratic influence from Congress and the White House, a possible deadlock between a Biden administration and a Republican Senate would drive all plans to tighten the screws on big corporations, especially in the tech sector would destroy.
A final call to scrutinize the Senate could be in the air by January.
"The market stuck to this idea that they think they know what the Senate outcome will be," said Walter Todd, chief investment officer at Greenwood Capital in Greenwood, South Carolina. "That made the debate about the president something." less important."
Todd noted that "You saw how much money was marginalized by the market before the elections" and it was now flowing back.
At the same time, some investors were hoping that even less tax support could benefit other sectors like materials and industrials, whose stocks rose Thursday. Renewable energy shares, for which Biden has pledged large investments, also rose, reversing sharp declines from Wednesday.
"It should not be ignored that even more moderate policies also have positive effects on the industry and the cyclical recovery," said Arnim Holzer, strategist for macro and correlation defense at EAB Investment Group in Philadelphia.
The fluctuations in the market over the past 36 hours represent some run-off of the position given the closer than expected race, investors said. However, given the US and global environment of ample liquidity and low bond yields, equity inflows and corporate debt are likely to continue.
(Graphic: Trump timeline – https://graphics.reuters.com/USA-STOCKS/xlbvgwyzmvq/trumptimeline.png)
This is especially true of the mega-tech companies – stocks of Apple (O :), Amazon (O 🙂 and Alphabet (O 🙂 extended the rally on Wednesday.
For Jonathan Bell, Chief Investment Officer at Stanhope Capital, the result was the best of both worlds.
"Choosing Biden increases the chances of a fiscal stimulus deal, but (with a Republican Senate) it also reduces his ability to enforce significant (tax increases) or policies that Amazon and Apple could restrict," Bell said.
"Tech seems to believe that the disruptors, most of which are antitrust regulations, won't matter and that the Senate can prevent that."
Similarly, Didier Saint-Georges, a member of the Strategic Investment Committee at wealth manager Carmignac in Paris, noted the positive aspects for pharmaceutical stocks.
The elections did little to change the generally positive investment environment, said Saint-Georges, adding, "Trump's move to Biden looks like a revolution but may not be as significant in terms of the marketplace."
FED TO THE RESCUE?
Cue central banks.
Your generosity in buying assets has lowered government bond yields and volatility, pushing US stocks on a strong uptrend. The S&P 500 Index () is up around 57% from its March lows and is up 7% this week.
The bet now is that a lack of fiscal stimulus may force the Federal Reserve and its colleagues to fill the void.
(Graphic: Central bank balance sheets are swelling – https://fingfx.thomsonreuters.com/gfx/mkt/xklvymajkvg/Pasted%20image%201604589866870.png)
The Fed maintained its loose monetary policy on Thursday and again pledged to do whatever it takes to sustain a recovery in the US economy in the coming months, despite Chairman Jerome Powell's expectations that bond purchases could increase in the months ahead Asked question.
Investors hope that policymakers could provide more guidance on future aid.
Rick Rieder, chief investment officer of Global Fixed Income at BlackRock, said in an email that the Fed's next move will likely be to buy more government bonds, but "significantly less incentives will tarnish that requirement from here."
Nevertheless, for the time being, the Fed can "focus directly on other actors or potential actors while the wheels of change continue to roll," said Rieder.
(Graphic: The Risks for the Fed: Jobs The Risks for the Fed: Jobs – https://graphics.reuters.com/USA-FED/ELECTION/oakvenlakpr/chart.png)