Wall Street Rally Continues as Dow Jumps 540 on Bets for Divided Congress

U.S. stocks jumped on Thursday, as investors bet Republicans would retain control of the Senate and block any major policy changes under a possible Joe Biden White House that could dampen corporate profits.

With votes still being counted in battleground states, investors were abandoning cautious pre-election positioning, driving all of Wall Street's main indexes up for a fourth straight session.

While a fiscal stimulus package is widely expected, the size of any deal reached in a divided Congress is likely to be much smaller than anticipated. This in turn could pressure the U.S. Federal Reserve to pump more funds into the financial system, supporting equity prices.

Stocks got a brief additional boost from the Fed's statement on Thursday. The central bank kept its loose monetary policy intact and again pledged to do whatever it can to sustain an economy severely damaged by the coronavirus pandemic. In the post-statement press conference, Chair Powell said the Fed would not consider directly funding fiscal activities.

Biden was edging closer to victory after winning Michigan and Wisconsin, but his Democratic party appeared unlikely to win the Senate. This eased investor worries about tighter regulations on Big Tech and a corporate tax hike.

"They stayed with what the market had expected. I think there's concern about the economy and the trajectory of the economy. But basically, I don't think they surprised the market; they maintained their accommodative stance and maintained that fiscal stimulus is needed," said Quincy Krosby, chief market strategist at Prudential Financial in Newark, New Jersey.

"Given the scenario of an election where you're still counting ballots, it would be very difficult for the Fed to insert itself at this point."

Some market participants cautioned, however, that it was not yet certain that Congress will remain split, so there is a slim chance markets could be in for a shock.

The Dow Jones Industrial Average rose 542.52 points, or 1.95%, to 28,390.18, the S&P 500 gained 67.01 points, or 1.95%, to 3,510.45 and the Nasdaq Composite added 300.15 points, or 2.59%, to 11,890.93.

This week's rally marked the biggest four-day percentage gain for each of the three major indexes in nearly seven months.

The tech-heavy Nasdaq, packed with "stay-at-home" corporate winners under this year's lockdowns, gained well over 2% and was within striking distance of its Sept. 2 record closing high.

The Philadelphia SE semiconductor index surged 4.40% to close at an all-time high, while technology, up 3.12% provided the biggest boost to the S&P 500.

Qualcomm Inc rocketed 12.75% higher after the chipmaker forecast fiscal first-quarter revenue above estimates as it predicted solid growth in 5G smart phones sales next year.

Nearly all 11 of the major S&P 500 sectors moved higher with the exception of energy in a broad rally, and the VIX volatility index, which has risen in recent months as investors feared the vote might spark falls in shares, touched its lowest in three weeks.

The materials sector gained 4.05% to hit a record, boosted by a 6.15% rise in shares of U.S.-German industrial gas producer Linde.

Advancing issues outnumbered declining ones on the NYSE by a 4.57-to-1 ratio; on Nasdaq, a 3.30-to-1 ratio favored advancers.

The S&P 500 posted 75 new 52-week highs and no new lows; the Nasdaq Composite recorded 155 new highs and 21 new lows.

Volume on U.S. exchanges was 10.42 billion shares, compared with the 9.16 billion average for the full session over the last 20 trading days.

GLOBAL STOCKS

The dollar slipped and global stock markets surged, while the Bank of England became the latest central bank to announce more stimulus.

Investors leapt on the prospect of gridlock in Congress and the notion Silicon Valley will be spared greater oversight if the Democrats in fact are unable to control the Senate.

Tech shares in Europe jumped 2.5%, extending a rally of just over 8% this week, while the tech-heavy Nasdaq composite index, S&P 500 and Dow industrials each rose about 2%.

European stocks hit two-week highs on strong earnings results and after the BofE increased its already huge bond-buying stimulus by 150 billion pounds ($195 billion), or about 50 billion pounds more than expected.

The Federal Reserve kept its loose monetary policy intact and pledged again to do whatever it can in coming months to sustain a U.S. economic recovery threatened by the spreading coronavirus pandemic.

"All indications in the market seem to really be putting this whole event in the rearview mirror, which is a little surprising to me considering how tight some of this stuff is," said Patrick Leary, chief market strategist and senior trader at Incapital in Minneapolis.

Equities have surged as the size of a fiscal stimulus deal reached in a divided Congress to support the economy is likely to be much smaller than anticipated under a Biden-led blue wave.

But that likely will force the Fed to pump more money into markets, which ultimately supports equities.

MSCI's benchmark for global equity markets rose 2.15% to 591.38, while Europe's broad FTSEurofirst 300 index closed up 0.94% at 1419.84.

Overnight in Asia, stocks rallied 2% to their highest since February 2018. Japan's Nikkei rose 1.7% to a more than nine-month top, South Korea gained 2.4% and Chinese blue chips added 1.3% on hopes a Biden White House would ease up on tariffs.

The dollar fell to two-week lows against a basket of currencies and a seven-month low against the Japanese yen as the likelihood of a Democratic blue wave in the White House and Congress slowly vanished, snuffing any large U.S. stimulus package.

The dollar index fell 0.86%, while MSCI's benchmark for global equity markets rose 2.15% to 591.38. Emerging markets stocks surged 2.88%.

"The market's assuming that Biden wins the White House but that the Senate is not going to be in the Democrats' hands, so you don't have as big of a stimulus," said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.

U.S. Treasury yields edged higher after dropping from four-month highs as a large jump in near-term supply to fund stimulus became less likely, reducing the appeal of the debt and weighing on the dollar.

Weak economic growth is putting a damper on the ability to offer higher interest rates for government debt, which is weighing on the dollar, Chandler said.

The euro was up 0.88% to $1.1825 and the Japanese yen strengthened 0.96% versus the greenback to 103.52 per dollar.

The Chinese yuan gained to a more than two-year high of 6.5994. The currency had been slammed by Sino-U.S. disputes since the outbreak of the bilateral trade war in 2018.

Gold surged as the dollar slipped, with spot prices rising 2.35% to $1,947.96 an ounce.

U.S. gold futures settled up 2.7% at $1,946.80.

The 10-year U.S. Treasury note rose 0.2 basis points to 0.7663%.

Italy's five-year bond yields fell below zero for the first time.

Oil prices dropped on growing concerns about weak demand as the economy sputters during a resurgent coronavirus pandemic.

Brent crude futures settled down 30 cents at $40.93 a barrel. U.S. crude futures fell 36 cents to settle at $38.79 a barrel.