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Markets Swing as Investors Brace for Drawn-Out Election Results

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The lack of a decisive result in the presidential election left markets on edge, as stock futures turned higher early Wednesday and government bonds rallied.

Futures tied to the S&P 500 were up 1.6%, while contracts for the technology-heavy Nasdaq-100 index rose 3.6%. Both measures swung sharply overnight. S&P 500 futures had briefly turned red after President Trump accused Democrats of trying to disenfranchise his voters and promised to petition the Supreme Court, though he didn’t elaborate.

Futures rose after counts in Wisconsin and Michigan pointed toward possible wins for Mr. Biden, though a substantial number of ballots remain uncounted.

“The market has been underpricing the chance of a close result,” said Seema Shah, chief strategist at
Principal Global Investors.
“I’m surprised U.S. equities are doing as well as they are,” Ms. Shah added, saying she expected to see more wild swings in stock prices in the near term.

Money managers had long pinpointed a drawn-out or contested result as having the potential to spark big swings in asset prices, in part because such outcomes would diminish the chances of lawmakers quickly passing a second round of economic stimulus. A lack of Democratic gains in the Senate also appeared to lower the likelihood of that happening.

Wagers that a Democratic sweep of the White House and Congress would lead to the speedy passage of more aid had sent bond yields higher in the days leading up to the election. That trade unwound Wednesday as the chances of a “blue wave” faded. The yield on the 10-year Treasury note fell to 0.796% from 0.881% Tuesday, putting it on course for its biggest one-day drop since mid-June.

“This is a mega, mega move,” said Gregory Perdon, co-chief investment officer at U.K. private bank
Arbuthnot Latham.
The prospects of a wave of Treasury issuance to fund a burst of federal spending under a Democratic administration had faded, he said. Yields fall as bond prices rise.

The president won Ohio, Iowa, Texas and the key prize of Florida, while Mr. Biden flipped an electoral vote in Nebraska and won Arizona, the first time the state has gone to a Democratic presidential candidate since 1996. That set up a showdown in Pennsylvania, Michigan and Wisconsin, which, along with states such as Georgia and North Carolina, weren’t yet called.

President Trump and former Vice President Joe Biden addressed supporters early Wednesday morning as votes were still being tallied. Biden said he was optimistic, while President Trump raised the possibility of election fraud without citing any evidence. Photos: Carlos Barria/Reuters; Stefani Reynolds/Bloomberg News

Technology stocks jumped ahead of the opening bell, with Apple,
Amazon.com
and Google owner Alphabet all gaining ground.
Uber Technologies
rose almost 11% and
Lyft
around 14% premarket, after California voters approved an initiative that let the ride-hailing firms count their drivers as independent contractors.

Shares in banks and industrial companies, which are closely tied to the outlook for the economy and tend to suffer when longer-term bond yields slide, came under pressure.

In a sign that investors were reaching for safe-haven assets, the dollar initially rose against a basket of currencies tracked by The Wall Street Journal. China’s yuan, Japan’s yen, the euro and the British pound all fell against the U.S. currency, though some of those gains later reversed. European government bond yields also fell, with German 10-year bunds briefly touching negative 0.66%, their lowest level since March.

A stock trader in Frankfurt as the market reacted to the U.S. election.

A stock trader in Frankfurt as the market reacted to the U.S. election.

Photo: kai pfaffenbach/Reuters

“The blue wave that the market had started to price has not come to fruition and it’s still very much up in the air,” said Ian Tew, a head of trading for major currencies at
Barclays.
“The market is concerned about that, and it then tends to buy the safe haven of the dollar in that environment.”

Trading volumes in currency markets were unusually low for an election night, Mr. Tew said, in part because investors and traders were reluctant to put on new positions given the uncertainty. The dollar was largely driven higher by hedge funds and other market participants unwinding wagers they placed against the greenback before the vote, he said.

Still, some fund managers were waiting to pounce on any drop in stock prices as a buying opportunity.

“If you look over the long term, the policies in the two camps in terms of how corporate America might shape itself in the future are not completely apart,” said Maria Municchi, a multiasset fund manager at M&G Investments.

Write to Joe Wallace at Joe.Wallace@wsj.com

A Global Asset Management Seoul Korea Magazine

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