Dow Spikes as Investors Wait for Outcome of U.S. Election Drama

• The Dow Jones Industrial Average rose by as much as 423 points on Thursday.
• Investors wait for more results from the U.S. election.
• A divided Congress is very likely at this point.

The Dow and broader U.S. stock market traded higher on Thursday, extending the post-election rally, as investors hope we will soon know the winner of the U.S. presidential race.

Dow, S&P 500, Nasdaq Rise

All of Wall Street’s major indexes traded higher Thursday. The Dow Jones Industrial Average rose by as much as 423 points.

The broad S&P 500 Index of large-cap stocks gained 1.6%, while the technology-focused Nasdaq Composite Index advanced 1.8%.

A measure of implied volatility known as the CBOE VIX plunged by nearly 10% on Thursday after surging to four-month highs last week. The so-called “fear index” reached an intraday low of 26.04 on a scale of 1-100, where 20 represents the historic average.

A Divided Government Is Likely

Even though a delayed and contested election result was heralded as the market’s “nightmare scenario”, stocks rebounded all day Wednesday and continue to rebound Thursday. Experts believe a delay has already been factored in by investors, and say the possibility of a Republican Senate restricting a Democratic White House gives stocks a boost.

Brad McMillan, chief investment officer at Commonwealth Financial Network, said:

Markets are reacting very positively to the fact that a great deal of the election uncertainty has passed. Not all of it, but at least the worst outcomes seem to have been avoided. Markets hate uncertainty, and this is likely to be a tailwind for a while.

Stephen Auth, chief investment officer for equities at Federated Hermes, says a divided government will be “a far happier outcome for the markets” than a Democratic sweep.

Auth explained that a divided government will be able to push through a substantial fiscal package while avoiding the “growth-killing tax hikes” that Democrats would have implemented had they gained full control of Congress. He said such an outcome will be bullish for stocks in 2021.

Joe Biden Is Very Close To Winning

Democratic candidate Joe Biden appears to be heading for a narrow Electoral College victory over Donald Trump, though several key states are still counting the votes. 

Joe Biden is within striking distance from the White House early Thursday morning. After winning both Michigan and Wisconsin Wednesday, Biden’s electoral tally is 264, while Trump’s is 214.

With Nevada, Pennsylvania, North Carolina, Alaska, and Georgia still undetermined, Biden still lacks the 270 votes needed to win the Electoral College and therefore the presidency.

In what could further delay a final outcome, the Trump campaign has launched a series of lawsuits for the counting of the votes in several states, sparking protests across the country. Watch the video below to know more:

Some strategists have noted that a contested election could cause stocks to fall sharply in the near term.