Despite the unresolved outcome of the US election, bulls keep driving this market higher. Our head of markets explains why.
With the US election yet to get over the line, markets have taken a positive view on the likely outcome.
A Biden win and a split legislature would probably maintain the status quo. Specifically, the previously feared tax hikes and potential regulatory reform would be less likely in the event of split power, while further fiscal stimulus could well follow in the new year.
The non-farm payroll numbers are due later in the day, with expectations for 600 000 jobs to be added (661,000 in September) and an unemployment rate of 7.7% (7.9%). With the Federal Reserve pledging to support the economy for as long as needed without announcing any further action, this release could well underline the need for fiscal stimulus as the economy falters in the face of a second wave.
Even so, the bulls have prevailed of late and the indices have regained some of their poise. In the year to date, the Dow Jones index is now down by just 0.5%, the S&P5 00 is ahead by 8.6% and the Nasdaq has recouped its previously high levels, now up 32.5%.
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For the UK, the announcements to extend the furlough scheme and a further £150 billion injection by the Bank of England, both aimed at reducing economic pressure, have been mildly positive for sentiment. The news has also been positive for sterling, along with some optimism on a last-minute reprieve in Brexit negotiations and, equally importantly, some dollar weakness. This has in turn capped some of the FTSE 100’s gains over the last few days given its exposure to overseas earners, and the index remains down 21% in the year to date.
The most immediate fillip for global markets would be some end in sight to the human and economic effects of the pandemic. There have been some positive noises from the likes of AstraZeneca (LSE:AZN) on late-stage trials for a Covid-19 vaccine being on track to produce results later this year, with a rollout shortly after subject to regulatory approval.
Until such time as such a vaccine is confirmed with a realistic timeframe for widespread distribution, the shackles will remain on any sustained economic recovery.
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