Dow Jones Price Forecast:
- The Dow Jones climbed more than 2% Tuesday as the S&P 500 posted its second best Presidential election day gain on record
- Still, stocks remain at risk until a candidate is elected and a contested election could see uncertainty return
- How Will Markets React to the 2020 US Presidential Election?
Dow Jones Charges Higher as US Election Day Unfolds, What Now?
The Dow Jones jumped more than 2% in a broad-based rally on Tuesday, enjoying its biggest daily gain since July 14. Not to be outdone, the S&P 500 surged 1.78% and posted its second best Presidential election day gain on record. Evidently, this week’s price action is a significant departure from the declines witnessed last week, but the same level of uncertainty beneath the surface remains.
Thus, stocks might remain at risk until a clear winner is produced. To be sure, a contested election would likely spark risk aversion, an environment that might see equities decline while assets like gold and the US Dollar climb. While there are themes, events and concerns that will continue to influence the market far beyond election night, the most immediate concern for the Dow Jones is seeing a clear winner emerge as quickly as possible.
Dow Jones Price Chart: 1 – Hour Time Frame (September 2020 – November 2020)
To that end, some sectors might perform differently under a Trump or Biden administration over the longer-term, global risk appetite is still highly sensitive to coronavirus cases. Consequently, a contested election outcome might be all the more troublesome because it would likely delay another stimulus bill further. As a result, election uncertainty and economic weakness due to coronavirus might compound and spark a greater flight to safety should they occur.
That being said, there is little indication – at the time of publication – that a contested result will occur. To be sure, battleground states will likely be up for grabs well into the night, so there is little insight as to the final result at this time.
With the election poised to head into the night even after equity markets have closed, traders will have to shift their focus to futures and forex markets. Should one candidate begin to pull ahead, we may see the some of the sector-focused investment plays unfold. Until then, the market will be awaiting an outcome alongside millions of Americans at home. For real-time election coverage from a global macro perspective, check back at DailyFX.com throughout the night and in the days ahead.
–Written by Peter Hanks, Strategist for DailyFX.com
Contact and follow Peter on Twitter @PeterHanksFX