Shares surge as investors bet on Biden but did markets jump the gun? 

Shares around the world rallied yesterday as American voters headed to the polls in one of the most divisive presidential elections in decades.

On a day of tension on trading floors worldwide, the Dow Jones Industrial Average led the charge on Wall Street, rising 2.38 per cent or 641.69 points, while the tech-heavy Nasdaq was up 2.12 per cent.

The gains were echoed across Europe with the FTSE 100 index up 2.3 per cent in London, the main German benchmark 2.6 per cent higher in Frankfurt and the French market up 2.4 per cent in Paris.

Before the coronavirus crisis, President Trump regularly hailed stock market gains as evidence that the US economy was motoring on his watch

The rally came as investors bet on a clear victory for challenger Joe Biden on the back of a ‘blue wave’ of votes in which the Democrats seize both the Senate and the House of Representatives – bringing Donald Trump’s presidency to an end after one four-year term.

‘The markets in the last 48 hours have become a bit more convinced of a Biden victory without the messy risk of weeks of uncertainty and turmoil,’ said Derek Halpenny, head of research at MUFG.

But warning that investors may have jumped the gun, Holger Schmieding, chief economist at Berenberg, said: ‘I’m more nervous than markets are.’

And Connor Campbell, an analyst at Spreadex, added: ‘The markets tempted fate on Tuesday, forgetting the lessons of 2016 as they pre-emptively celebrated a Joe Biden victory.’

US stock markets have soared under Trump with the Dow Jones Industrial Average up more than 50 per cent in the past four years and the Nasdaq up more than 140 per cent.

Before the coronavirus crisis, Trump regularly hailed stock market gains as evidence that the US economy was motoring on his watch.

But while Biden is considered to be less pro-business than the President, investors have been buoyed by polls suggesting the veteran Democrat could secure enough of the vote to avoid weeks of legal wrangling and uncertainty.

And many investors believe a conclusive victory by Biden would let him fulfil his pledge to launch a £1.7 trillion infrastructure spending programme to help the US economy recover from the ravages of the Covid-19 pandemic – boosting stock markets but weakening the dollar along the way.

The dollar fell sharply last night – with the pound surging back above $1.30 – as the prospect of a huge spending splurge under a Biden presidency hit the greenback.

Analysts at Wells Fargo said a Joe Biden (pictured) win would boost stocks in the short term

‘Markets are expecting not only a clear Biden victory but also a policy reaction that will come with more fiscal spending,’ said Chris Bailey, a strategist at Raymond James.

Analysts at Wells Fargo said a Biden win would boost stocks in the short term – but the mounting cost of his policies could then drive prices lower.

‘We expect stocks to rally on the prospects of a material fiscal stimulus package, but we do not want to stick around for the bill,’ they said.

Jussi Hiljanen, a strategist at Nordic bank SEB, said: ‘The worst-case scenario for markets would be an extended period of uncertainty resulting from the election being too close to call.’ 

But with Trump still firmly in the race, Paul Leech, co-head of global equities, said investors maintained a ‘healthy degree of nervousness’ about the prospect of a disputed result.

Tihana Ibrahimpasic, an analyst at fund manager Janus Henderson, added: ‘If we do get a contested outcome, then uncertainty is the worst thing for markets.’