By Peter Nurse
Investing.com - U.S. stocks are seen opening sharply higher Thursday, as the post-election rally rolls on with investors buying into the idea of political gridlock reducing the chance of major policy changes, while the result of the presidential vote draws nearer.
At 8:05 AM ET (1205 GMT), S&P 500 Futures traded 60 points, or 1.8%, higher, the Dow Futures contract rose 383 points, or 1.4%, while Nasdaq 100 Futures climbed 290 points, or 2.5%.
The Dow Jones Industrial Average closed 1.6% higher Wednesday, while the S&P 500 index climbed 2.4%, and the Nasdaq Composite index added 3.8%. The last two indices are currently on course to have their best weeks in seven months, with equity markets overall on pace for their best election week in decades.
The race for the White House remained undecided Thursday, but Democrat candidate Joe Biden appears to hold thin leads in the crucial swing states of Wisconsin and Michigan, edging him closer to victory over incumbent President Donald Trump.
Investors also seem to be rejoicing at the signs that the Senate will stay in Republican hands, reducing the prospects of substantial regulatory changes and a potential hefty increase in capital gains tax under a unified Democratic Congress.
The fly in the ointment is the close nature of the vote, which could open the door to a lengthy litigious process, with President Trump already filing lawsuits, alleging fraud without providing evidence.
“We think this positive risk tone is unlikely to last long,” said strategist John Velis at BNY Mellon (NYSE:BK), in a research note. “We see a prolonged period of uncertainty expected, with a delayed and contested election that should raise volatility and depress risk appetite.”
While the likes of healthcare and tech stocks have gained sharply on the idea of new regulation being difficult to get past a divided Congress, stocks that have been hit hard by the coronavirus pandemic may suffer if a new coronavirus relief package ends up being a lot smaller than the $3 trillion Democrats had been looking for.
This puts the focus back on to the Federal Reserve, with daily U.S. Covid-19 cases topping 100,000 for the first time. The U.S. central bank will release a statement at 2 PM ET (1800 GMT), and is expected to hold its short term rate at 0.25%, for now.
The key economic release Thursday will be the weekly initial jobless claims number, at 8:30 AM ET, with a drop to 732,000 last week expected, from 751,000 last week. However, Wednesday’s private payrolls disappointment suggests the possibility of a weaker than expected number.
U.S. crude futures traded 1% lower at $38.75 a barrel, while the international benchmark Brent contract fell 0.6% to $40.97, adjusting after sharp gains Wednesday after U.S. inventories dropped sharply.
Elsewhere, gold futures rose 1.2% to $1,919.05/oz, while EUR/USD traded 0.7% higher at 1.1808.