Americans jumped up Tuesday morning to head to the election polls and stocks leaped right with them.
The Dow Jones Industrial Average rose 1.6% on Tuesday with the S&P 500 gaining 1.2% and NASDAQ Composite bumping 0.8%. Stocks were helped by October manufacturing hitting its highest level since 2018.
“As the election finally nears, investors who were selling on the rumor may now be buying on the news, and finally, after almost a 10% decline in the last month, buying on the dip is back,” Leuthold Group chief investment strategist Jim Paulsen told CNBC.
Investors also are monitoring control of the Senate, which could bring about policy change for a large-scale fiscal stimulus that could boost the economy and/or higher taxes for companies and the wealthy. If declaring a president election winner between Donald Trump and Joe Biden drags out, it could have an adverse effect on the market.
However, some stock market analysts are cautious about reading a market resurgence around the time of a general election. There was an immediate decline after Trump’s victory in the 2016 election, but it rebounded a day later.
“The experience of 2016 suggests that investors should be careful about taking strong positions on political outcomes and, worse, mechanically translating those to market outcomes,” Capital Economics chief economist Neil Shearing said in a Monday note that Yahoo! reported. “Back then, the consensus was that Trump was unlikely to win, but if he were to prevail then his rhetoric on trade and ‘carnage in America’ would spell disaster for equity markets. We all know what happened next.”
This time, it is clearer that we don’t know what will happen next.