US stocks surged to close higher on Wednesday as the presidential election race remained cloudy but the likelihood of gridlock in Congress made investors optimistic that major policy changes would be difficult to enact.
Both President Donald Trump and Democratic nominee Joe Biden still had paths to reach the 270 Electoral College votes needed to win as states kept counting mail-in ballots. Biden held a narrow lead in Wisconsin late Wednesday while Trump’s campaign said it had filed a lawsuit in Wisconsin in an attempt to halt vote counting.
A surprise win by Republican Senator Susan Collins in Maine dimmed hopes by Democrats that they could get control of the U.S. Senate.
Growth stocks , currently comprised of a large portion of names in areas such as tech, surged as investors anticipated a similar landscape to the one in the months leading up to the election, in which they generally outperformed value stocks , which are currently comprised of mostly cyclical stocks such as banks and energy.
“Even if Joe Biden wins the Presidency, it looks like we are going to have a divided congress so the opportunity to have meaningful change at the fiscal level is pretty slim, and that is what is being priced into the back end of the market today,” said David Joy, chief market strategist at Ameriprise Financial in Boston.
“If we are going to have a similar type of economic environment as we’ve had, then we are going back to an emphasis on trying to find earnings in a relatively scarce earnings environment, back to the same winners as before.”
Unofficially, the Dow Jones Industrial Average rose 371.42 points, or 1.35%, to 27,851.45, the S&P 500 gained 74.3 points, or 2.21%, to 3,443.46 and the Nasdaq Composite added 427.53 points, or 3.83%, to 11,588.10.
The S&P healthcare index jumped to a record high, while the information technology sector also gained strongly, as a divided Congress means slimmer chances for heightened antitrust scrutiny, capital gains taxes and a restoration of parts of the Affordable Care Act. The healthcare index was on track for its biggest daily percentage gain in about five months.
Still, with the rising possibility of a contested presidential election, investors have said they favor a definitive, swift resolution that would clear the way for a deal on a stimulus package to help revive the economy.
The NYSE FANG+TM Index , which includes the core FAANG stocks such as Apple and Amazon jumped.
Shares of defense contractors Northrop Grumman , Lockheed Martin and Raytheon all rose between on receding chances of a cut in the defense budget.
Big Pharma Pfizer , Merck & Co and Johnson & Johnson also climbed as the potentially split Congress was likely to shield the industry from sweeping reform. The NYSE Arca pharmaceutical index shot higher.
The CBOE volatility index , a gauge for short-term volatility, hit a two-week low after spiking to a four-month high in the run-up to the election.
Despite the rally in stocks, the potential for political uncertainty also sent investors to U.S. Treasuries, sparking the biggest one-day drop in 10- and 30-year bond yields since June. Shares of U.S. banks , which typically track Treasury yields, slumped.
