Big US tech shares were set to rally and the dollar weakened as results of the election so far reshaped investors’ outlook for the path of the American economy and interest rates.
Futures tracking the Nasdaq 100 index jumped 2.5 per cent, signalling a further advance after the index that is weighted towards the biggest US tech groups soared 4.4 per cent on Wednesday. S&P 500 futures climbed 1.9 per cent while long-term Treasury prices advanced.
Shares in Facebook, which rose more than 8 per cent on Wednesday, added a further 2.5 per cent in pre-market trading, with Apple, Amazon and Google parent Alphabet also rising.
The dollar index, which measures the buck’s performance against six trading partners’ currencies, fell almost 0.9 per cent.
This marked a continuation of a trend that began when election results began rolling in on Tuesday evening. A stronger-than-expected performance by Donald Trump in the presidential race and fading expectations Joe Biden’s Democrats will turn over the Senate upended Wall Street expectations of a “blue wave” that could have ushered in $2tn of economic stimulus.
Investors viewed this forecast spending spree as a long-awaited catalyst for a repricing of assets across the world, with a rebound in US growth supporting higher inflation and bond yields and a stronger dollar.
“Coming into this election, you had a market that was itching to rotate out of tech and low-yielding government bonds,” said Johanna Kyrklund, chief investment officer of Schroders. “But now it’s looking like more of the same.”
With the presidential race now too tight to call and expectations building for a divided Congress, investors on Thursday were repositioning their portfolios to reflect expectations of slower growth and more stimulus measures from the Federal Reserve.
“You go back to the old playbook of growth stocks that will outperform,” said Jurrien Timmer, director of global macro at Fidelity.
The tech-heavy Nasdaq Composite has soared almost 30 per cent this year, compared with a 6.6 per cent gain for the more evenly-balanced S&P 500.
Meanwhile, investors continued buying longer-term US government debt, pushing yields lower. The 10-year yield was recently down 0.02 percentage points at 0.75 per cent, having jumped above 0.9 per cent on Tuesday before polls closed in some key states. Some eurozone bonds also rallied, with the yield on Italy’s five-year bond turning negative for the first time.
Fixed-income investors were also expected to pay close attention to a Federal Reserve monetary policy statement due to be released on Thursday afternoon in Washington.
Market expectations for volatility have cooled even as the presidential race in several battleground states remained tight and many political analysts expect several days or potentially weeks of uncertainty.
“The market is assuming it [the result] will not be contested or we would be on the back heels,” Mr Timmer said.
Eric Stein, chief investment officer for fixed income at Eaton Vance, added that investors were “looking through” the period of uncertainty.
“The market appears to be saying it could get messy, but it isn’t something that will be as material of a risk as people were worried about before,” he said.
Additional reporting by Hudson Lockett and Thomas Hale