After a brief pause yesterday in the stock market’s 7-day winning streak, Wall Street is back in the green. The Dow Jones Industrial Average (DJIA) rocketed almost 1% higher on Wednesday morning.
But some traders are confused by the market’s strong reaction after Joe Biden announced Kamala Harris as his VP pick last night. Jonathan Golub, chief US equity strategist at Credit Suisse explained the confusion:
I think there are many who are wondering why the market’s been as strong as it is because some of [Biden’s] policies are a little bit less market friendly.
He’s referring to Biden’s proposals on tax as well as Harris’ tough stance on the energy sector and tech companies.
U.S. stock futures soared overnight, and the strength carried into today’s regular trading session.
As of 9:37 am ET, the Dow Jones had shot 258.78 points (0.93%) higher to 27,945.69.
The S&P 500 raced to gains of 0.96% that lifted the index to 3,365.44. The Nasdaq surged 1.1% to 10,901.08, led by Tesla – which announced a 5-1 stock split last night .
The risk-on trade is firmly back in play as gold plummeted from its recent highs.
Democratic candidate Joe Biden now controls a 10-point lead over Trump in national polls . He’s also ahead in crucial battleground states like Wisconsin . Analysts say the Dow should be showing a little more caution. Golub said:
It doesn’t really appear as if the market is concerned at the moment.
Biden has already laid out plans with respect to higher taxes which won’t impress Wall Street. Last night, he revealed Kamala Harris as his VP pick, which throws new concerns into the ring.
Harris previously said she would repeal Trump’s tax cuts “on day one.” Harris has also been outspoken on curbing the energy sector and implementing a tax on tech companies. Neither are market-friendly policies.
Energy policy is going to be a very, very big deal. The energy stocks are going to be key.
With the prospect of a new administration with tighter policy, why isn’t the Dow sinking? Well, as Golub pointed out, the markets are fixated on a different issue right now.
The most important thing [right now] is the direction of the pandemic and a potential vaccine.
Even if Biden wins in November, his priority will be controlling the outbreak and maintaining stimulus relief. His other policies will have to wait. There’s also an argument to be made that Wall Street sees Biden as a safer pair of hands to manage the pandemic over the coming 12 months.
Video: Stocks will get volatile going into the election
Having said that, we could see the market begin to price in the election as we get closer. Frederique Carrier, head of investment strategy at RBC Wealth Management said the next few months leading into November won’t be as smooth as the recent run-up.
The second half of the year is likely to be a bit more choppy than the last few months.
The rotation out of high-flying tech stocks continues today, which is potentially a good sign as the market rally gains breadth. Value stocks, cyclicals, and recovery plays are all showing strength again in pre-market trading.
Back on Capitol Hill, lawmakers ended the fourth day without a relief package agreement. Meanwhile, President Trump confirmed he would purchase 100 million vials of Moderna’s vaccine if the human trials prove effective.
Across the pond in Europe, the UK fell into recession this morning after posting a 20% plunge in GDP through the second quarter. The UK’s economic slump is now the worst of all G7 countries.