U.S. equity futures are mixed on Wednesday morning, following a volatile overnight session that at one point saw Nasdaq futures spike to levels that triggered circuit breakers. The moves came as the country awaits results of the 2020 elections, which are up in the air with both President Donald Trump and Democratic nominee Joe Biden failing to clear the necessary 270 Electoral College threshold needed to win.
- Dow futures (YM=F): -42 points or 0.2%
- S&P 500 futures (ES=F): +20 points or 0.6%
- Nasdaq futures (NQ=F): +285 points or 2.5%
- Russell 2000 futures (RTY=F): -5.6 points or 0.3%
Most of the votes are in, but the results so far reflect a presidential race that’s still too close to call — even as predictive markets swung dramatically in favor of the incumbent. The big surprise is how much public support Trump was able to garner, despite polls that broadly favored the former Vice President.
- States called for Trump: Ky., W. Va., S.C., Ala., Miss., Tenn., Okla., Ark., Ind., N.D., S.D., Wyo., La., Neb., Kan., Mo., Idaho, Utah, Ohio, Iowa, Mont., Fla., Texas
- States called for Biden: Vt., Va., Conn., Del., Ill., Md., Mass., N.J., R.I., N.Y., N.M., D.C., Colo., N.H., Calif., Ore., Wash., Hawaii, Minn., Ariz., Maine (3 of 4 electoral votes)
After opening positive across the board on Tuesday evening, equity futures pulled back with Dow and S&P futures flipping negative, after AP projected Trump leads in key battleground states including Florida — which many thought would go to Biden.
“To me, the biggest takeaway is the massive, absolutely massive failure of polling,” FundStrat Global Advisors’ Tom Lee said. “This is a big money business and is used to influence behavior and financial markets. And these polls have been dead wrong again.”
While expectations for a big win for Biden may have been overblown, the race nevertheless remains too close to call.
This didn’t stop Trump from declaring victory as he simultaneously questioned the election process itself, which includes the ongoing voting of mail-in ballots
Trump indicated that his campaign would challenge any attempts to keep counting ballots.
“We’ll be going to the U.S. Supreme Court. We want all voting to stop,” Trump said to a crowd of supporters at the White House. “We don’t want them to find any ballots … and add them to the list.”
“We were getting ready to win this election,” he added. “Frankly, we did win this election.”
Meanwhile, Biden too expressed confidence that the vote would go his way.
“We feel good about where we are. We really do,” Biden said to a crowd in his home state of Delaware. “I’m here to tell you tonight we believe we’re on track to win this election.”
Market reaction signals we could be getting more of the same
As for the tech-heavy Nasdaq outperforming, this may be traders increasing the odds we see more of what we saw in the previous four years: Tech shares outperforming under a divided government.
“U.S. equities would experience a relief rally driven by the long-duration growth sectors which have underpinned the U.S. market’s gains in the last four years,” Credit Suisse’s Andrew Garthwaite wrote about a potential Trump re-election scenario.
At about 10:15 p.m. ET, trading in Nasdaq futures were halted briefly after contracts surged 3.9%, triggering a circuit breaker.
“In typical election risk-driven fashion it’s been the stairs up and express elevator down as early results, especially out of Florida, are pointing away from the quick Biden outcome markets were looking for,” Axi strategist Stephen Innes said. “Markets have taken a step back from the Democratic sweep scenario.”
The market moves follow Tuesday’s surge, which saw the Dow (^DJI) rally 555 points, or 2%. That followed a 1.6% jump in the Dow on Monday as markets recovered much of last week’s sharp losses.
All eyes are on election results. In recent weeks, polling data have signaled Biden with an edge on Trump, whom for months has lagged in public surveys and predictive markets.
However, it’s unclear if there will be a winner declared in the near-term, especially with the Trump campaign saying it may contest the results should they point to a Biden victory. A contested election may already be priced into the market, with at least some Wall Street experts considering it their baseline scenario.
Don’t make too much of the initial market reaction
It’s also unclear what investors should take away from election night futures activity.
Just four years ago when Donald Trump unexpectedly defeated Hillary Clinton, markets plunged that Tuesday evening with U.S. equity futures dropping 5% and hitting limit down, only to surge during Wednesday’s trading session. The S&P 500 gained 1.1% when it was all said and done.
And Wall Street’s forecasters haven’t forgotten about it.
“[T]he experience of 2016 suggests that investors should be careful about taking strong positions on political outcomes and, worse, mechanically translating those to market outcomes,” Capital Economics’ Neil Shearing wrote on Monday. “Back then, the consensus was that Trump was unlikely to win, but if he were to prevail then his rhetoric on trade and ‘carnage in America’ would spell disaster for equity markets. We all know what happened next.”
There are a lot of things that could go wrong on election night and the days that follow. But the bottom line seems to be that investors should be cautious about betting too much on what they expect in the short-term.
“We recall dire predictions from many pundits and commentators about the stock market’s reaction to Mr. Trump’s surprise election victory in 2016,” Oppenheimer’s John Stoltzfus wrote in a note to clients.
“Our view is that such a reactive post-election downdraft would likely prove temporary and that after any ‘shock’ or ‘panic’ subsides, markets would again attempt to scale the proverbial ‘wall of worry’—seeking to grind higher on the strength of fundamental indicators such as jobs, income growth, monetary policy, and the next tranche of fiscal policy support, when it arrives,” he added.
