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After rallying on Election Day, financial markets swung wildly on Tuesday night as voting results indicated that the outcome of the U.S. presidential election could remain unclear for longer than investors had hoped.
Earlier in the day and into the evening, investors seemed to be betting that a victory for Democrats could set the stage for a large pandemic relief spending package in Washington early next year. That could bolster the economy, fueling consumer spending and cushioning growth even as coronavirus cases surge again. It would also mean big deficits in the near term, potentially pushing longer-term interest rates higher.
But financial markets were whipsawed as traders and pundits saw states leaning toward President Trump and Republican Senate candidates. On one hand, Mr. Trump’s low taxes and limited regulation have been popular among investors. On the other, analysts have been clear that a divided government could hurt the chances for a big spending package. Investors might also be wary that delayed vote counts could lead to a long period of uncertainty.
Futures on the S&P 500 Index oscillated between gains and losses as East Coast tallies came in, after the index gained 1.8 percent in regular U.S. trading on Tuesday.
But by about 10:30 p.m. in New York, stock futures were sharply higher. Government bond yields plunged before beginning to bounce back.
“This is going to be a long night, and possibly a long couple of days,” said Gennadiy Goldberg, a rates strategist at TD Securities in New York. “It is going to be a closer race than markets anticipated.”
In other markets, Japanese stocks were higher while stocks in mainland China and Hong Kong were slightly higher after recouping early losses.
It could take hours — if not days — for many states to report final tallies. More than 100 million votes were cast before Tuesday, and states have different processes for how to count mail-in ballots with some waiting until after Tuesday’s votes are counted.
“In the morning, it’ll be about the important states,” Mr. Goldberg said, pointing to Pennsylvania, Michigan and Wisconsin, which are not expected to call the election right away. “That’s what we’re watching — how close it is, what is the likelihood of a contested election.”
Mr. Goldberg said that he and his colleagues are watching for two things — “process risk” and “outcome risk.”
By “process risk,” he meant the possibility that election results will not be clear quickly either because races are too close to call or not fully reported, or because there are legal challenges to the results. By “outcome risk” he meant the various ways the results could play out: With Mr. Trump re-elected, with former Vice President Joseph R. Biden Jr. elected, and with a Democratic- or Republican-controlled Senate.
“A contested — or a confrontational — Senate or presidential outcome is the most negative” possibility, said Guy LeBas, chief fixed-income strategist at Janney Capital Management. But the ways the votes break will matter for the intermediate outlook.
On Tuesday night, markets already appeared to be adjusting to the possibility that Democrats might not win decisively.
Over recent weeks, yields on longer-dated Treasury securities had climbed, which many speculated was a sign that investors expected a “blue wave” in which Democrats won the White House and Senate and passed a big fiscal spending package that would lead to the issuing of substantial government debt. But yields dipped sharply lower in Asian trading around 9:30 p.m. New York time, then reverted only partly.
Sandwiched between Tuesday’s election and the Friday’s October jobs report, the Federal Reserve is set to announce its November policy decision.
There’s a good chance that the central bank will lay low at Thursday’s meeting, both because of the murky economic outlook and because the Fed is politically independent and will want to avoid inserting itself into the election storyline.
“I don’t think they want to get into anything political — anywhere near anything political,” said Gregory Daco, chief U.S. economist at Oxford Economics. Though Chair Jerome H. Powell is sure to face election-related queries at his webcast news conference, he is likely to dodge them.
“I’m sure he’s preparing in front of a mirror right now to answer some of these questions,” Mr. Daco said.
The Fed slashed interest rates to near-zero in March and has been buying about $120 billion in government-backed bonds per month to soothe markets and support demand. Officials are expected to discuss their future bond buying plans at this meeting, but economists expect them to hold off on major decisions as the economy’s path ahead remains wildly unsettled.
Manufacturing data have shown recent improvement. Spending on goods has been strong, bolstered by savings stashed away earlier in the year even as expanded unemployment benefits have lapsed and small business loans have run dry. Yet the situation could darken as consumers exhaust their savings and coronavirus cases surge, and the pace of job gains is already slowing.
Economists in a Bloomberg survey estimate that employers probably brought back or added 600,000 workers in October, a relatively small number when compared to the millions of Americans still out of work.
Fed officials have historically received key jobs numbers from the White House Council of Economic Advisers ahead of their release on Friday morning. But the secure fax containing that data has typically been sent late on Thursday afternoon, a person familiar with the process said. Officials will not know the October numbers before their meeting.
For months, investors have signaled that their No. 1 desire is more federal spending to keep the economy afloat in the face of a pandemic that is now rapidly expanding.
So when the election season culminates on Tuesday, the prospects for a stimulus bill are likely to influence how Wall Street reacts.
With that in mind, here are four electoral outcomes and how investors might view them.
The Blue Wave
The potential for this result — with former Vice President Joseph R. Biden Jr. winning the presidency decisively and his fellow Democrats taking control of the Senate — fueled a short stock market rally in late September and early October.
The narrative was simple: If Democrats hold all the cards, the spending will be big.
Should it happen, stocks will probably rise along with expectations for economic growth. The impact will be evident in other markets, too: Long-term interest rates would rise, and the dollar would fall as investors bet on larger federal deficits and slightly higher risks of inflation.
Asterisks abound however. A blue wave also promises more legislation on taxes or regulation, so analysts think a thin Democratic majority in the Senate — the so-called light blue wave — that leaves some limits on the Democratic agenda might be a slightly better outcome for investors.
Return of the Red Senate
Conventional wisdom on Wall Street is that Washington gridlock is usually best for stocks, because it means the government is unlikely to do anything that hurts corporate profits.
But the coronavirus crisis and ensuing economic slump have prompted some soul-searching on this point, and many Wall Street analysts see a split decision on Tuesday — with Republicans retaining control of the Senate and Mr. Biden taking the White House — as potentially the worst outcome for financial markets that are hanging their hope on a stimulus bill.
“A Biden win with a Republican-controlled Senate would likely lead to much less fiscal stimulus, little public investment and no major tax changes,” analysts with the money management giant BlackRock wrote in a recent note.
Another Trump Triumph
Pollsters are putting a high probability on a Biden victory, but it is still possible that President Trump will win re-election.
It would most likely mean the Republicans also retain control of the Senate, while Democrats almost certainly still control the House of Representatives.
In short, nothing will have changed in the standoff over how much spending to authorize, and optimism about another large-scale near-term stimulus package could quickly evaporate.
On the flip side, though, a second Trump term would ensure that taxes on companies or the wealthy won’t be rising. Plus, Mr. Trump could replace the Federal Reserve chair, Jerome H. Powell, with someone who is much more in tune with the president’s preferred monetary-policy posture and something stock investors might love: low interest rates forever.
The Uncertain Outcome
A vote that is so close in certain key swing states that the outcome hangs on litigation that will ultimately be resolved by the Supreme Court will be trouble for investors.
Even if Mr. Biden wins the election, President Trump has suggested on multiple occasions that he might not accept the outcome.
If Mr. Trump doesn’t concede, it’s hard to know when this fraught election season will end. In such an environment, there won’t be any progress on a stimulus deal, most likely delaying the arrival of any more help for the economy.
In other words, uncertainty that has weighed on markets in recent weeks will probably be projected out for the foreseeable future. That means the stock market would be in for another rocky ride until it’s clear who will lead the federal government for the next four years.
No matter who is elected, the next president will face an economy that is still reeling after the shutdowns last spring. Some areas have bounced back, but others remain deeply depressed, and millions of Americans are still out of work.
It’s a thrill to be the first news organization to report the results of a presidential race. But no journalist wants to be stuck with the job of reversing a blown call. That’s how it went for NBC’s Tom Brokaw and other news anchors in 2000, after they reported that Al Gore had gotten more votes than George W. Bush in Florida, the state that would decide the election. “We don’t just have egg on our face,” Mr. Brokaw told viewers. “We have an omelet.”
At the end of a 2020 campaign complicated by significant early voting and unfounded claims by President Trump that the election has been “rigged,” journalists have pledged caution going into Tuesday night. They remember all too well how Mr. Trump defied the polls four years ago, and they do not want to be caught off guard off again.
With their interactive maps and coifed pundits, the broadcast networks and cable news outlets are set up to deliver some spectacle along with the news — but they have vowed to be prudent. “Frankly, the well-being of the country depends on us being cautious, disciplined and unassailably correct,” Noah Oppenheim, the NBC News president, said in a recent interview. “We are committed to getting this right.”
Susan Zirinsky, the president of CBS News, said the team she oversees will try to manage the expectations of impatient viewers. “We’re preparing the audience that this might not be over in one night,” Ms. Zirinsky said.
In the United States — which, unlike many other countries, does not have a national electoral commission — the role of projecting the winners of presidential elections falls to the news media. Here’s how it will work:
Each TV network makes its own state-by-state determinations. ABC, CBS, CNN and NBC, as part of the group of news organizations belonging to the National Election Pool, base their calls on data gathered by Edison Research. The Associated Press, which has assigned 4,000 reporters to collect information from county clerks in 50 states, conducts its own count. Fox News, starting in 2018, has relied on a model that draws from data provided by The A.P.
Major news organizations, including NPR, PBS and the newspaper chains Gannett and McClatchy, wait for The A.P. to call races before they report results. Other outlets, including The New York Times, The Wall Street Journal and The Washington Post, use data from The A.P. to help them make their own determinations. Reuters will deliver results in collaboration with the National Election Pool.
The A.P. has been known for its cautious approach since it started tracking the vote in 1848, when Zachary Taylor won the presidency. In 2000, The A.P. resisted the temptation to declare a winner in the race between Mr. Gore and Mr. Bush.
“If there’s no way for the trailing candidate to catch up, no legal way, no mathematical way, then the race is decided, essentially,” Sally Buzbee, The A.P.’s executive editor, said. “And if there is any uncertainty, or if there are enough votes out to change the result, then we don’t call the race.”
Saudi Aramco, the world’s largest oil company, said on Tuesday that its net income for the third quarter was $11.8 billion, about 45 percent lower than the period a year earlier. But compared with the second quarter, when oil prices crashed because of the effects of the coronavirus pandemic, the state-controlled company’s earnings improved nearly 80 percent.
“We saw early signs of a recovery,” Amin H. Nasser, Saudi Aramco’s chief executive, said in a statement. He also said that the global energy markets were facing “headwinds.”
Despite the lower earnings, the company said it would stick to its commitment to pay a hefty $18.75 billion quarterly dividend. The payout is substantially larger than the $12.4 billion cash flow for the quarter, meaning that the company is effectively borrowing to pay it, analysts say.
The company pledged to pay a $75 billion a year dividend during the prelude to its initial public offering last year. Most of the money goes to the Saudi government, which owns about 98 percent of the company.
Oil prices have come under renewed pressure in recent days as new lockdowns in countries such as Britain, France and Germany threaten the economic recovery and reduce fuel consumption.
Voters across the country are weighing in Tuesday on dozens of ballot initiatives. At a time of sharp economic inequalities, a number of the proposals bend toward a progressive view of taxes, with higher rates for companies and wealthy individuals.
Here are the ballot initiatives related to business and economics that we’re watching:
California’s Proposition 22 would allow ride-share and delivery companies to classify drivers as contractors, not employees.
California’s Proposition 15 would amend the state’s Constitution to raise billions of dollars for schools and local governments by lifting the protections for commercial property owners enshrined in a landmark 1978 ballot initiative.
California’s Proposition 21 would allow cities to enact rent control measures on almost all rental housing that’s more than 15 years old.
Florida’s Amendment 2 would increase the state minimum wage to $15 in 2026 from $8.56 in 2020.
Illinois’ Allow for Graduated Income Tax amendment would replace the state’s flat income tax of 4.95 percent with graduated taxes that would range from 4.75 percent to 7.99 percent.
Arizona’s Proposition 208 would tax higher-income taxpayers to funnel money into public schools. It would allow an income tax surcharge of 3.5 percent on single filers making above $250,000 and joint filers earning more than $500,000 in addition to the existing 4.5 percent income tax.
The pandemic has shut down thousands of restaurants in cities across the country, prompting Eduardo Porter of The New York Times to ask: What will happen to America’s urban centers when the restaurants are gone?
Downtown restaurants in big cities are suffering the most. And it is urban America — the big cities and their downtowns that rely on restaurants as a fundamental social glue — that will feel the shock of their demise most intensely.
By Aug. 31, more than 32,000 restaurants and 6,400 bars and nightspots that had been open on March 1 were marked closed on Yelp.
In New York — perhaps the nation’s dining-out capital — a survey by the Hospitality Alliance found that 87 percent of restaurants were not able to pay all their August rent.
In September, the New York State comptroller estimated that one-third to one-half of the 24,000 restaurants in the city could close permanently over the next six months.
Forty-three percent of bars were closed on Oct. 5, and spending at those still open was down 80 percent from the same day in 2019, according to Womply, a company that provides technological platforms to small businesses.
Restaurants have been a key element of America’s urban transformation, helping draw the young and highly educated to city centers. This has often turned industrial and warehouse districts into residential areas. It has also overhauled many low-income neighborhoods, sometimes forcing longtime residents out of town.
High-tech industries and their well-paid jobs have undergirded these changes, but social and cultural establishments have also proved pivotal. Already in the last two decades of the 20th century, cities with more restaurants and theaters per person were growing faster than their peers, notes a study by the economists Edward Glaeser, Jed Kolko and Albert Saiz, even as rents grew faster than wages.
The demise of restaurants weakens the central economic pillar of superstar cities: the gain in productivity that comes from having many smart, young, creative people sharing ideas in the same place.