U.S. Stock Market Reacts Positively on Election Day
On Election Day, U.S. stocks experienced a notable rally as voters headed to the polls and new economic data reinforced confidence in the resilience of the economy.
Market Performance
The S&P 500 rose by 1.2%, inching closer to its record set last month, while the Dow Jones Industrial Average gained 427 points (1%). The Nasdaq composite climbed 1.4%, reflecting a broad-based surge across major indices.
The market received a boost from a report indicating that growth in the U.S. services sector accelerated last month, surpassing economists’ expectations for a slowdown. The Institute for Supply Management reported that this growth marked the strongest performance in over two years, alleviating concerns about a potential recession following a period of significant inflation.
Economic Indicators and AI Boom
Excitement surrounding the artificial intelligence sector also contributed to the market’s positive momentum. Notably, Palantir Technologies saw its stock jump 23.5% after reporting earnings that exceeded analysts’ expectations. CEO Alexander Karp attributed the strong performance to “unrelenting AI demand.”
However, this was somewhat offset by a 5.2% drop in shares of NXP Semiconductors, which warned of spreading weakness in industrial markets that could affect both Europe and the Americas.
Overall, the S&P 500 rose 70.07 points to 5,782.76, the Dow gained 427.28 points to 42,221.88, and the Nasdaq composite rallied 259.19 points to 18,439.17.
Election Day Uncertainty
While the stock market was buoyed by positive economic news, the main event on Tuesday was the presidential election. The uncertainty surrounding the election results—potentially delayed for days or weeks as votes are counted—could create volatility in the markets, especially with an upcoming Federal Reserve meeting on interest rates.
Investors widely expect the Fed to cut its main interest rate for the second consecutive time, which could also influence market dynamics.
Long-Term Focus Amid Uncertainty
Despite the uncertainties surrounding the election, many professional investors suggest maintaining a long-term perspective. Historically, the U.S. stock market has tended to rise regardless of which party occupies the White House. According to Sam Stovall, chief investment strategist at CFRA, the S&P 500 has risen in 73% of the years with a Democratic president and 70% of the years with a Republican.
The stock market has seen larger gains during Democratic administrations, partly due to the downturn experienced under George W. Bush, who took office as the dot-com bubble burst and left as the 2008 financial crisis unfolded.
Factors Influencing Market Sentiment
In addition to the presidential race, investors are contemplating whether the White House will be controlled by a unified Congress or a split government, as well as the possibility of contested election results.
Historically, investors have preferred a split Congress, as it tends to maintain the status quo and avoid drastic changes that could significantly increase national debt.
Looking back at previous elections, in 2000, the S&P 500 dropped 5% in the five weeks following Election Day during a contested election. However, in 2020, the S&P 500 rose the day after polls closed, despite the lack of a clear winner, largely due to optimism about a COVID-19 vaccine.
From Election Day 2020 to the recent Monday, the S&P 500 surged 69.6% following President Joe Biden‘s victory, buoyed by the economic recovery from the pandemic. Similarly, from Election Day 2016 to Election Day 2020, the market increased by 57.5%, influenced by tax cuts enacted under Trump.
Conclusion
As the U.S. stock market reacts to the unfolding events of Election Day, investors remain vigilant, weighing economic indicators against the backdrop of electoral uncertainty. The focus will likely shift to how the election results influence market sentiment and economic policy moving forward.
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