U.S. Stocks Finish Strong, Treasury Yields Higher as Election Results Lift Cloud of Uncertainty

The major U.S. equity indexes finished sharply higher on Wednesday after the mid-term elections presented no surprises and President Trump offered an olive branch to the Democrats. After the results of the U.S. mid-term elections showed a split Congress as predicted, Treasury yields began to rise as an early stock market rally started to pick up traction. Traders may have also been selling T-notes and T-bonds in anticipation of a hawkish monetary policy statement from the U.S. Federal Reserve on Thursday.
James Hyerczyk
Bull Market 1
Bull Market 1

The major U.S. equity indexes finished sharply higher on Wednesday after the mid-term elections presented no surprises and President Trump offered an olive branch to the Democrats. The indexes opened higher and maintained a steady intraday trend early in the session as the results of the election lifted a cloud of uncertainty that had been weighing on prices since early October.

Shortly after the mid-session, the indexes received a major boost that sent equity prices soaring after President Trump said he was willing to work with Democrats on policy initiatives that would help the robust economy continue growing.

In the cash market, the benchmark S&P 500 Index settled at 2813.89, up 58.44 or +2.12%. The blue chip Dow Jones Industrial Average closed at 26180.30, up 545.29 or +2.13% and the tech-based NASDAQ Composite finished the day at 7570.75, up 194.79 or +2.64%.

In the S&P 500 Index, gains were spread throughout most of the sectors with health care, technology and consumer discretionary sectors each posting more than 2.8 percent gains.

Shares of Caterpillar and Goldman Sachs were big winners in the Dow. Amazon and Alphabet drove the NASDAQ higher.

Goldman Sachs noted the S&P 500 has averaged a gain of 0.7 percent from the day before the elections to the day after the mid-terms.

Bank of America Merrill Lynch added that stocks typically do well when Congress is split and the White House is under Republican control. In those instances, the S&P 500 averages an annual return of 12 percent.

Finally, CNBC said, “Wednesday marked the biggest post mid-term gains for both the Dow and S&P 500 since the day after the 1982 contests, when the indexes surged 4.3 percent and 3.9 percent, respectively.

U.S. Treasury Markets

The U.S. Treasury markets were more volatile than stocks. T-notes and T-bonds rallied during the early session Tuesday night/Wednesday morning before the election results were known. This was likely fueled by position-squaring and flight-to-safety buying.

After the results of the U.S. mid-term elections showed a split Congress as predicted, Treasury yields began to rise as an early stock market rally started to pick up traction. Traders may have also been selling T-notes and T-bonds in anticipation of a hawkish monetary policy statement from the U.S. Federal Reserve on Thursday. At the end of the session, December 10-year Treasury notes were slightly lower as well as December 30-year Treasury bonds.

Treasury traders felt the as-expected results were not likely to cause any major fluctuations in the credit markets. They went on to say that with the Democrats winning the House and the Republicans retaining control of the Senate, Congress could stall plans for further tax cuts or major spending. This could help support bond prices which have been pressured by historic deficit spending and debt issuance from the Treasury Department.

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