Friday, December 13, 2024

Stocks, Bitcoin Surge as Election Results Roll In

US stocks soared in after-hours trading on Tuesday night as the first election results came in, with Bitcoin also hitting a new all-time high.

Futures on the Dow surged over 600 points, and the S&P 500 gained 0.5%. The US dollar index reached its highest level since July. This surge reflected optimism among investors as they processed the early returns of the presidential election.

Bitcoin, which is closely linked to the so-called “Trump trade,” also made significant gains. It surpassed $74,000, setting a new record. Its previous high was reached in early March. Former President Donald Trump has long supported cryptocurrencies, which could explain some of this surge. Additionally, Dogecoin, the volatile cryptocurrency popularized by Elon Musk, a well-known Trump supporter, rose by more than 20% on the same day.

Despite Trump leading Vice President Kamala Harris in early results, many key battleground states remained undecided as of Tuesday night.

The race between the two candidates was still too close to call. Economists, however, cautioned that this could result in heightened market volatility. If it takes days or even weeks to finalize the outcome, the situation could mirror past elections, such as the 2000 contest between George W. Bush and Al Gore, which dragged on for over a month.

The broader market showed strong gains on Tuesday. The Dow finished up 425 points, or 1%, while the S&P 500 rose by 1.2%. The tech-heavy Nasdaq climbed 1.4%. These increases underscored investor optimism on Election Day, a trend that has been historically common. This marks the sixth consecutive Election Day gain for both the S&P 500 and Nasdaq.

Louis Navellier of Navellier & Associates noted that the market appeared to be in an “anticipatory relief rally” as Election Day arrived. While it was still uncertain who would win, he suggested that simply having the election behind the markets would bring some relief to investors.

However, the possibility of a delayed or contested election result could lead to more market volatility.

Adam Turnquist, Chief Technical Strategist at LPL Financial, warned that political divisiveness might harm investor sentiment. He pointed out that past elections, such as the 2000 Bush vs. Gore race and the 2020 election, saw significant market turmoil due to legal challenges and delayed results. Nonetheless, Turnquist suggested that markets might be more prepared for election-related chaos after enduring those events.

As election results trickle in, different sectors of the market could react in various ways depending on the candidate leading. If Harris gains an advantage, sectors like green energy and manufacturing could see gains due to expectations of increased infrastructure spending, clean energy initiatives, and social programs. However, tech and finance could face tighter regulatory scrutiny. On the other hand, a Trump lead would likely favor energy, finance, and industrial stocks, as investors would anticipate continued tax cuts and a more relaxed regulatory environment.

Despite these potential shifts, historical trends suggest that stocks tend to rise in the months following an election, regardless of the outcome. Turnquist noted that, while policy—particularly in areas like tax and trade—does have an impact, the larger forces driving stock prices are earnings, inflation, and interest rates.

In the days ahead, traders are bracing for potential turbulence.

Just two days after Election Day, the Federal Reserve will announce its latest interest rate decision. This marks the first rate change since a half-point cut earlier in the year. The Fed’s announcement will add another layer of uncertainty, especially as new data signals a cooling labor market. This combination of election results and economic reports could make for a volatile week in the markets.

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