Stocks End Week With Biggest Post-Election Day Rally In Over A Century

Topline

Though Friday marked a day of lukewarm gains and losses across the three broader-market indexes, stocks still ended the week with their best post-election rally in at least a century as investors celebrated results that could keep the regulatory environment favorable for corporations. 

Key Facts

The S&P 500 remained virtually flat on Friday, solidifying a 7% rebound from last week’s steep decline after four straight days of gains, including the index’s biggest post-Election Day jump in at least 100 years, notes Lindsey Bell, a chief investment strategist for Ally Invest. 

Meanwhile, the Dow Jones Industrial Average—a measure of 30 stock market heavyweights like Goldman Sachs, McDonald’s, Microsoft and Disney—ticked down 0.2% on Friday to end the week and reversed last week’s losses of 6%; the Dow’s now down 1.5% this year.

The tech-heavy Nasdaq (also virtually flat on Friday), on the other hand, surged more than 9% this week–nearly reaching its September all-time highs as investors flooded growth and momentum stocks as fears of increased oversight of big-tech under a Democrat-controlled Congress subsided.

Despite the risks associated with contested election results and the impact of rising coronavirus cases on economic data, expect stocks to be higher at the end of the year, says Bell, adding that “November and December are typically the two best months for stocks, even in election years.”

Total payrolls rose by 638,000 in October–an encouraging sign for a labor market that’s been lagging other indicators amid the pandemic; the household survey “was the shining star of [Friday’s] October employment report,” notes Morgan Stanley.

Stocks were also tepid abroad on Friday: The United Kingdom’s FTSE 100 climbed less than 0.1%, France’s CAC 40 was down less 0.5%, and Japan’s Nikkei 225 ticked up 0.9%.

Crucial Quote

“It was a relatively boring day as an exhausted market limped into the weekend following huge gains Monday through Thursday,” says Adam Crisafulli, the founder of Vital Knowledge Media. “Biden has been the unofficial president-elect since Wednesday morning, and investors are now trying to determine what happens with the senate, fiscal stimulus, monetary policy, and Covid vaccines,” he notes, adding that the latter is “probably the single most important topic facing the market right now.”

What To Watch For

The 2020 holiday season. Retail sales were an unexpected economic boon in September, and Morgan Stanley says it expects similar traction in October as retailers pushed to start the holidays early and amid gains in labor income, but the firm also expects that a “difficult winter [with] rising Covid-19 cases” could slow down spending in the weeks to come.

Key Background

The election outcome that Wall Street thinks is now most likely–a Biden victory and a split Congress–has been good news for stocks, but the economic recovery remains sluggish and awash with disparities such as continued job losses despite better-than-expected corporate earnings (especially in tech). Meanwhile, the ongoing surge in new Covid-19 cases further stains the economic outlook, fueling discussions about the need for a coronavirus vaccine and further fiscal relief.

Tangent

Shares of Cambridge, Mass.-based Biogen were halted on Friday ahead after a meeting with Food and Drug Administration officials during which the agency unexpectedly declined to support the firm’s Alzheimer’s drug aducanumab.

Further Reading

A Biden Win And Split Congress Is Wall Street’s Best-Case Scenario, Now Investors Turn Focus To These 3 Big Issues (Forbes)

Billionaire Leon Cooperman Knows ‘For Sure’ Election Results Will Be Challenged—Here’s His Outlook On Stocks And The Economy (Forbes)

McConnell Changes His Tune On Stimulus: ‘We Need To Do It Before The End Of The Year’ (Forbes)

Unemployment Claims Remain Above Pre-Pandemic Highs With No More Federal Aid In Sight (Forbes)

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