Stocks Jump as U.S. Heads to Polls
A broad-based stock rally on Tuesday left the market with its biggest gain ever on a presidential Election Day.
The Dow Jones Industrial Average climbed 305.45 points to 9625.28, leaving it up 3.3% on the day and easily outpacing the previous record Election Day gain of 1.2% set in 1984 as President Reagan won a second term in a landslide over Walter Mondale. Prior to that, the New York Stock Exchange shuttered trading during balloting for the presidency.
Continued easing in bank-to-bank lending costs and expanded efforts by the federal government improved the market's fundamentals a bit on Tuesday, traders and analysts said. But the wind-up of the grueling presidential race dominated participants' attention.
At the same time, veteran traders remain on guard against the weakness in the global economy that is likely to linger for months into the next president's term, as will weak profits and other investor-unfriendly pitfalls.
'You can't get carried away here and read too much into this rally,' said hedge-fund manager Doug Kass, of Seabreeze Partners in Palm Beach, Fla. 'With the market up, this is a good time to unload economically sensitive stocks and pick up things that are likely to weather the downturn a little better, like consumer staples.'
The S&P 500 jumped 4.1% to 1005.75. All its sectors ended higher, led by a 6.8% jump in energy. Among the other big winners were financials, up 5.6% as a group; basic materials, up 5%; and industrials, which rose 4.3%.
The Nasdaq Composite Index rose 3.1% to end at 1780.12. The small-stock Russell 2000 was up 1.4% to 545.96. Both are on six-day winning streaks.
The dollar fell and oil prices jumped as investors' appetite for risky bets grew. But those trends are unlikely to last in the months ahead as signs of weakness in the global economy are likely to persist, said Paresh Upadhyaya, a currency-oriented portfolio manager at Putnam Investments in Boston
Mr. Paresh expects the dollar to continue to strengthen against the euro as the European Central Bank cuts its interest rates. But the dollar may weaken versus the yen, since U.S. rates have gotten so low that there is little incentive to do carry trades in which participants try to profit from interest-rate differentials by borrowing in low-rate denomination and lending in the high-rate one.
'We're about to reach a point where most of the G7 currencies are going to be low-yielding,' said Mr. Upadhyaya, referring to the idea that central banks around the world are cutting rates to spur their regional economies. 'It's just going to kill the carry trade.'
For the moment, however, such concerns seem to be on traders' back burner. In recent action, the dollar hovered near 100 yen, up from 99.07 yen late Monday. The euro traded at $1.2962, up from $1.2642. The U.S. Dollar Index, which measures the greenback's value against a basket of six overseas denominations, was sharply lower, off 2%.
The dollar's weakness helped to boost crude oil, which is traded globally in dollar terms and thus tends to move in the opposite direction of the U.S. currency. Traders also bet that Saudi Arabia will cut production to support recent efforts by the Organization of Petroleum Exporting Countries to stabilize oil prices.
Crude contracts registered their biggest jump since late September, gaining $6.62, or 10.4%, to end at $70.53 in New York. Oil's rally was part of a broad-based gain in the commodity sector. The Dow Jones-AIG Commodity Index was up 4.8%.
Markets have recently shown signs of stabilizing after a brutal October in which wild intraday swings in market benchmarks became commonplace. The Chicago Board Options Exchange's volatility index -- or VIX slid 11.2% to 47.69, its first close below 50 since Oct. 3.
Interbank lending rates continued their recent improvement, adding to the upbeat tone in the stock market. Three-month U.S. dollar Libor fell sharply to 2.70625%, the lowest since June 9, from Monday's 2.85875%. The rate has fallen consistently since peaking at 4.81875% on Oct. 10. The overnight rate edged lower to 0.375% from Monday's 0.3875%, below the Federal Reserve's fed-funds target rate of 1.0%.
Bonds were already lifted by mortgage-related buying after a rally in agency mortgage-backed securities spurred the need to hedge against the risks of falling interest rates. The five- and 10-year sectors benefited the most from the demand.
The two-year note was up 4/32, yielding 1.376%. The benchmark 10-year note gained 1-16/32 to yield 3.730%. The 30-year bond rose 2-3/32 to yield 4.202%.
Investors also welcomed reports that the Treasury Department is considering using more of its $700 billion rescue fund to buy stakes in a broad range of financial companies, not just banks and insurers, after tentative signs of the program's success. In focus are companies that provide financing to the broad economy, including bond insurers and specialty finance firms. Bond insurers MBIA and Ambac rose 15.1% and 10.4% respectively on the news.
'You've had such a shift in power over the last few months from New York to D.C.,' as federal officials have bailed out and increased their control of Wall Street firms saddled with toxic credit bets, said Kent Engelke, managing director of Capitol Securities Management in Richmond, Va.
'I'm sure there will be a lot of unintended consequences from that shift over the next few months no matter who wins the election,' he added. 'But in general, I think people are optimistic that within a year or two, the U.S. will be back on its feet. Election Day is bringing a lot of that sentiment out.' |
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