US stocks rallied while bonds fell back as Americans headed to the polls in one of the most significant elections in recent memory, with sweeping implications for global markets.
Tuesday’s moves had echoes of the “Trump trades” of recent weeks in which investors bet on bitcoin and stocks and sold Treasuries. They had pared some of those positions on Monday following weekend polls that cast some doubt on Donald Trump’s chances of victory.
The Mexican peso, which typically weakens when Trump is seen to be doing well, hit its lowest level in two years at 20.35 against the dollar.
“The good news is that the wait for the US election is over, the bad news is that it will be a long night for volatility,” said Bob Savage, head of markets strategy and insights at BNY, who described Tuesday’s mood as “risk on . . . but timidly given the too-close-to-call uncertainty”.
By early afternoon in New York, the blue-chip S&P 500 was up 1.1 per cent while the tech-heavy Nasdaq Composite had gained 1.3 per cent.
Shares in Trump’s lossmaking social media group, Trump Media & Technology, jumped 14 per cent while bitcoin gained more than 4 per cent to trade just below $70,000.
However, the US dollar, which rose in October on expectations of a Trump win, slid to a two-week low against a basket of currencies, down 0.4 per cent on the day.
Wall Street has been preparing for a long night, pausing software updates and booking hotel rooms for suburb-dwelling traders among other logistics.
“There is a hyped-up sense of anticipation as we await the results,” said Mark Dowding, chief investment officer at RBC BlueBay Asset Management. “We all know how much is at stake on this election outcome, but until the polls close we won’t know which way to jump.”
Tuesday’s sell-off in Treasuries was boosted by unexpectedly strong US service sector data, pushing yields on benchmark 10-year notes to 4.34 per cent, up 0.03 percentage points on the day and close to Friday’s four-month peak of 4.39 per cent.
Investors are anxious that there might not be clarity on the winner of the election running into a critical couple of days for global markets, with interest rate-setting decisions from both the Federal Reserve and Bank of England due on Thursday.
William Vaughan, associate portfolio manager at Brandywine Global Investment Management, said the potential for an unclear election result by the time of the Fed meeting contributed “significant uncertainty”, highlighting the four-day wait until the Associated Press made its call on the winner of the 2020 election.
The Ice BofA Move index, a keenly watched gauge of investors’ expectations of future volatility in US Treasuries, on Monday hit its highest in more than a year as a mixture of political and interest rate uncertainty unsettled the $27tn market.
Analysts at UBS said levels implied by options on the S&P 500 index suggested the benchmark could swing sharply at the end of the week. The cost of buying protection against swings in exchange rates such as euro-dollar has also jumped.
The knife-edge election is being viewed as a potential watershed moment by investors. If Republicans were to win the White House and both houses of Congress, investors worry that Trump’s promised mixture of tariffs and tax cuts could feed inflation and put upward pressure on interest rates.
That has led to a rally in the dollar and a rise in longer-dated Treasury yields in recent weeks.
European stock markets moved off their lows as Wall Street rallied, leaving the regional benchmark Stoxx 600 index to recover earlier losses and close flat while the UK’s FTSE 100 ended down just 0.1 per cent.
Elsewhere, UK long-term borrowing costs touched a fresh high for the year, with 10-year yields at 4.54 per cent. That topped levels reached after last week’s Budget fed concerns on government borrowing levels.
