Stock markets rise as investors await decision in uncertain U.S. election

·3 min read

Stock markets moved higher on Wednesday even as investors digested results of a U.S. election that remained too close to call.

U.S. stock indexes including the S&P 500 and the Dow Jones Industrial Average were both up more than two per cent in the afternoon and the technology-focused Nasdaq fared even better.

Shares in large tech companies such as Amazon, Facebook, Adobe, Apple and Google were all up by more than five per cent. That's largely because those companies have fared well during the pandemic and are likely to continue to see strong demand for their services no matter who is in the White House.

The TSX was a little more muted, with the main index up about 100 points or half a per cent. Energy companies and financial firms gained ground, while most other sectors lost ground.

The election outcome is of particular interest to Canadian energy companies, since the two presidential candidates have wildly different policies for the oil and gas sector. Donald Trump is more open to energy exploration, but favours U.S. firms. Joe Biden, meanwhile, is perceived to be a net negative for Canada's oilpatch, but the sector will face challenges no matter who wins.

"Although tariffs on energy are less likely, tariffs on other products, such as steel and aluminum, may continue," TD Bank chief economist Beata Caranci said in a note to clients on Wednesday. "Canadian producers know this all too well."

One sector of the TSX that was a clear loser on the day was cannabis stocks, which saw something of a mixed bag in the results. On the upside, four more states voted to legalize recreational use of the drug with New Jersey, Arizona, Montana and South Dakota becoming the 12th, 13th, 14th and 15th states to do so.

But a Congress and White House divided across party lines is unlikely to see more drug liberalization laws come to pass anytime soon.

Business professor Michael Armstrong at Brock University studies the cannabis market, and he says more states legalizing cannabis is likely to add pressure to the federal government to do something, but Republican control of the Senate makes full legalization unlikely.

"In the next Congress you're going to have more representatives representing states where they have local cannabis businesses," he said in an interview. "They are going to have a strong incentive to support legalization at the federal level."

That would be good news for cannabis companies, who have been waiting for permission to sell into the U.S. market.

But since it's unlikely to happen, those same companies now face a bleaker prospect. Shares in Canada's two biggest cannabis companies, Canopy Growth and Aurora Cannabis, both lost almost 10 per cent of their value.

Other sectors

Manulife's chief investment strategist Philip Petursson said September and October during election years are typically bad months for the stock market, but November and December tend to be good. So Wednesday's buying makes a lot of sense.

Starlight Capital
Starlight Capital

"Markets are already looking past the election to a continued recovery and favourable seasonality," Petursson said. "Trying to gain an edge in the equity markets based upon potential or real election results is a greatly unrewarding exercise."

While the winner of the election is still unknown, it's looking more and more clear that the expected Democratic sweep of all three branches of government is not happening, which means that more gridlock in Washington can be expected.

But that isn't necessarily a bad thing, at least from the perspective of the stock market. Should Biden emerge victorious while the two branches of Congress remain as they were, that could be an ideal situation for markets, said Dennis Mitchell, CEO of Toronto-based money manager Starlight Capital.

"Markets are rallying because the chaotic status quo is shifting to more predictability and stability," he said. "Drop Trump, take Biden but keep the House and Senate where they are ... This is the perfect scenario for markets and they are showing their support for this outcome."