TORONTO — U.S. stock markets surged higher in the aftermath of a close U.S. election that will likely result in a continuation of divided government.
"A split Congress is a recipe for inaction when it comes to major initiatives and potentially sweeping regulations. So investors interpret that as kind of maintaining the status quo," said Angelo Kourkafas, an analyst on the investment strategy team at Edward Jones.
Pre-election forecasts for a possible "blue wave," with Democrats winning the White House and both houses of Congress, now appear unlikely no matter who ultimately becomes president. Republicans lead in several Senate races that could allow them to maintain a slight majority while Democrats won control of the House of Representatives.
Meanwhile, President Donald Trump and Democratic challenger Joe Biden are locked in a tight battle in several key battleground states. Results in Michigan, Georgia and Pennsylvania remain too close to call.
The likelihood of a divided Congress dials back expectations about Biden's proposal for large tax changes that would threaten the tech surge, but also a large fiscal stimulus and infrastructure bill.
"(Markets) like gridlock because it means no big changes that could disrupt things," Kourkafas said in an interview.
The Dow Jones industrial average gained 367.63 points to 27,847.66 after being up 821 points in earlier trading. The S&P 500 index was up 74.42 points to 3,443.44, while the Nasdaq composite index was up 430.21 points or almost four per cent to 11,590.78.
Wednesday's early gains on the S&P 500 put the market on track for its best post-election day in the history of the index.
Canada's main stock index was dramatically less buoyant with the waning likelihood of a large U.S. stimulus package that would increase inflationary pressures and boost gold.
The materials sector lost ground as gold prices fell, with shares of First Majestic Silver Corp. and B2Gold Corp. losing 5.9 and 5.6 per cent respectively.
The December gold contract was down US$15.80 at US$1,894.60 an ounce and the December copper contract was up 1.45 cents at nearly US$3.11 a pound.
In addition to being heavy on resources, the TSX is less weighted toward the tech and health care sectors that drove U.S. markets higher — and Canadian companies won't benefit if Biden's plan to hike corporate taxes on foreign earnings doesn't materialize.
In Toronto, the S&P/TSX composite index closed up 59.59 points to 15,998.74 after hitting an intraday high of 16,111.67.
The tech sector outperformed as investors unwound their bets on cyclical sectors that would have benefited from a blue wave, said Candice Bangsund, portfolio manager for Fiera Capital.
Lower fiscal spending would be offset by a move away from higher taxes and tighter regulations.
"It's a bit of a best of both worlds scenario for equity investors, with those two sort of offsetting factors working well for equity investors today," she said in an interview.
The renewed threat of a contested election that is ultimately decided by the courts would likely trigger some short-term market volatility even though the economic recovery will endure regardless of the election result, say market observers.
"The more messy it gets, it creates that uncertainty, especially with COVID-19 raging pretty bad in the U.S.," said Vik Singh, professor at Ryerson University's Ted Rogers School of Management.
He noted that the market dropped around 10 per cent during the protracted legal battle following the 2000 election that was decided by the Supreme Court in favour of George W. Bush.
Michael Currie, vice-president and investment adviser at TD Wealth, said markets like gridlock because it means not much will get done on taxes, health care, climate change or other controversial issues.
And he said markets care more about the Senate result than who occupies the Oval Office.
"It sounds funny, but the market really right now doesn't seem to care terribly much who does win the presidency as much as nothing dramatic happens in either direction," Currie said in an interview.
But a ramped up legal battle could bolster volatility, added Mike Archbald, vice-president and portfolio manager with AGF Investments Inc.
"If we go into the weekend and we still don't have a clear outcome here, I certainly think you give back some of the gains that we've seen today."
The Canadian dollar was trading at 76.12 cents US compared to an average of 76.07 cents US on Tuesday.
Technology led the TSX, gaining four per cent with Lightspeed POS Inc. and Shopify Inc. each up 5.7 per cent.
Energy moved a bit higher on rising crude oil prices.
The December crude contract was up US$1.32 at US$38.98 per barrel and the December natural gas contract was unchanged at US$3.06 per mmBTU.
This report by The Canadian Press was first published Nov. 4, 2020.
Companies in this story: (TSX:FR, TSX:BTO, TSX:LSPD, TSX:SHOP, TSX:GSPTSE, TSX:CADUSD=X)
Ross Marowits, The Canadian Press
