US election results catch investors off guard as 'blue wave' trade unravels

Fading expectations of a decisive US presidential election win for Joe Biden have boosted government bonds and the shares of big US tech stocks, as investors cut back on trades based on the assumption of a “blue wave” Democratic sweep of the White House and Congress.
 

The S&P 500 advanced 1.6 per cent in early trading in New York, led by technology stocks rather than the economy-sensitive shares that had been favoured to climb in a “blue wave” scenario. The Nasdaq Composite, which has far outpaced the wider S&P 500 this year, snapped 2.7 per cent higher. Investors also rushed into US government bonds as expectations for a big infrastructure spending splurge dimmed.The yield on the benchmark 10-year US Treasury slid 0.11 percentage points to 0.77 per cent, its biggest decline since market gyrations in March. Yields fall as a bond’s price rises.

 

Opinion polls had led investors to bet that decisive Democratic victories would spark another round of stimulus for the pandemic-stricken US economy.
 

Those hopes are now fading. Biden may still clinch the presidency in an unexpectedly tight race, but the Republicans’ strong showing in several battleground states, and seemingly tight grip on the Senate, have prompted money managers to prepare for the prospect that the US could be left with a divided government, complicating the investment outlook. More bond purchases by the US Federal Reserve, more rate cuts — possibly into negative territory — and so-called yield curve control to keep bonds in check “might come into play”, he added.