The “blue wave” didn’t happen on Tuesday night — and Wall Street is breathing a sigh of relief.
Stocks surged on Wednesday after Republicans dashed Democrats’ hopes of taking both houses of Congress in a so-called “blue wave” — meaning that Joe Biden, even if he does eke out a victory in the 2020 election, will have a tough time undoing President Trump’s business-friendly policies.
The Dow Jones industrial average climbed as much as 821.47 points, or nearly 3 percent, to 28,301.50 as the GOP appeared poised to maintain control of the Senate while Trump and Biden were locked in a dead heat, although races in Wisconsin and Michigan were called in Biden’s favor later in the day.
The blue-chip index gave back most of those gains to close up 367.63 points, or 1.3 percent, at 27,847.66.
Tech giants such as Amazon, Apple and Netflix — which stand to benefit from continued low taxes and lighter regulations under a GOP-controlled Senate — helped the Nasdaq surge 3.9 percent, while the benchmark S&P 500 index posted a 1.3 percent gain.
“At a minimum we’re going to have a divided Congress and we’ll have more gridlock than we’ll have sort of a mandate for either party, which means basically that they’re not going to be able to do too much bad stuff,” David Trainer, CEO of investment research firm New Constructs, told The Post.
Wednesday’s rally — which marked the Dow’s third straight session of gains after suffering an 1,800-point drop last week — built on the earlier gains for different reasons. Some market observers in the run-up to Election Day had bet on a Democratic sweep clearing the way for another big stimulus package to address the coronavirus pandemic’s economic fallout.
But that was just “one narrative among many” playing out on Wall Street in the final stretches of an uncertain election cycle, according to David Keller, chief market strategist at StockCharts.com. The actual state of play could end up being better for stocks than the scenario investors had braced for, he said.
“While a Biden election and a Democratic Congress would certainly make a stimulus more urgent and it would probably be larger and certainly help in the short term, they would also be implementing policies that would generally be not as business-friendly,” Keller told The Post. “It’s not just a binary thing.”
While some market experts expect Congress to deliver another stimulus bill regardless of who takes the White House, Wall Street will have to contend with the fact that it could take several days to declare a winner in the presidential race.
Trump performed better than recent polls predicted, but more than half a dozen states remained too close to call early Wednesday, including the key battleground of Pennsylvania.
Election officials have yet to count many mail-in ballots that are expected to favor Biden, but Trump declared himself the likely winner as he made unproven claims of fraud by Democrats.
“The bigger problem now is that a new fiscal stimulus is now very unlikely in the foreseeable future, given the potential for extended legal action in coming weeks before a winner emerges, and even then we can look forward with trepidation to the president (whoever that is) having to battle lawmakers to get a stimulus bill through,” said Chris Beauchamp, chief market analyst at IG.
Thornton McEnery contributed reporting.
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