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Stock Markets Confront an Uncertain Election Outcome

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By: Ella Koeze·Source: Refinitiv

Stocks soared on Wednesday, as investors bet that political uncertainty would give way to a divided government in Washington and quickly realigned their expectations for what the election would mean for company profits and economic growth.

It was, on some levels, a surprising rally, given that just a day earlier investors had seemed to line up behind a sweeping victory by Joseph R. Biden Jr. and other Democrats that would have led to a surge in government spending. But the embrace of a result that might put Mr. Biden in the White House but leave Republican’s in charge of the Senate is actually a default position for Wall Street.

That view, simply put, is that gridlock can be good for stocks because it lowers the chances of sweeping policy changes, such as tax increases, that might hurt profits.

“If Republicans retain the Senate, we think the prospects of getting any bipartisan fiscal deal through Congress would be dramatically lower,” economists at Capital Economics wrote in a note on Wednesday. “The silver lining for the stock market, however, is that Biden’s proposed tax increases are unlikely to see the light of day either.”

The S&P 500 jumped more than 3 percent in its largest daily increase since April. Drug companies, health insurers and giant technology firms — sectors seen as potential focus of regulatory action — posted large gains, as investors saw lower risk of government action from either the Trump administration and potential Democratic White House.

Giant tech companies posted sizable gains. Google’s parent Alphabet — the target of a groundbreaking antitrust suit by the Trump administration’s Justice Department — soared more than 7 percent. Amazon rose 6 percent. Microsoft was up more than 5 percent.

Other markets also rallied. After starting the day with a loss, the Stoxx Europe 600 rose 2 percent, while the FTSE 100 climbed 1.7 percent. Benchmark American crude oil prices were up about 3 percent.

Analysts cautioned about extrapolating a clear signal from the gains, as the outcome of vote counting may continue to whipsaw markets as the election results are tallied over hours and perhaps days.

“At this point, we’ve got a couple days’ good grace with the market — but we need a winner fairly soon or it’s going to upset the apple cart,” said Ryan Detrick, the chief market strategist at LPL Financial.

Trading earlier in the day highlighted that potential. Trading in futures contracts for the S&P 500 moved between gains and losses nearly 10 times in the 12 hours leading to 6 a.m. Eastern on Wednesday. Markets had swooned at around 2 a.m. Eastern, after Mr. Trump falsely said that he had won the election and that he would ask the Supreme Court to intervene in the race.

“It could take even longer to know who won key congressional races, which so far suggest the Democrats and Republicans may be heading for a tied Senate,” Mona Mahajan, a strategist at Allianz Global Investors, wrote in a note. “Generally speaking, markets have performed best under divided government — when one party has only partial control of the House, Senate and presidency, although in this environment enacting a swift stimulus response would be a key priority.”

Investors had seen a clearer path on Tuesday, when they positioned portfolios for an overwhelming Democratic victory in Tuesday’s election. A strong victory for Mr. Biden and the Democratic Party would have set the stage for a large pandemic relief spending package in Washington early next year.

Wall Street has been clamoring for such an aid program for months, but negotiations between the White House and the Democratic House leadership fizzled in recent weeks.

Cao Li and Jeanna Smialek contributed reporting.

Credit…Pool photo by Michael Reynolds

Shares in American technology companies surged on Wednesday as the prospect faded that the Democrats would sweep both houses of Congress and the White House, an outcome that had raised the likelihood of more regulation of the tech sector.

The race for both the presidency and Senate is proving to be tighter than polls showed, and the chance of a political divide between the White House and Congress was propelling tech stocks higher. The Nasdaq 100 jumped 4.5 percent after markets opened, its biggest rise since early April.

Amazon’s shares rose 4.5 percent, Apple climbed 2.8 percent, Alphabet gained 4.3 percent and Facebook was 6.7 percent stronger. Over all, the Nasdaq 100 is up 34 percent this year (the S&P 500 is up just 7.4 percent).

Analysts suggested that if Joseph R. Biden Jr., the Democratic nominee, won the presidency but the Republican Party kept their majority in the Senate, the inevitable political gridlock would diminish the possibility of broader regulatory controls on the tech sector.

But votes are still being counted and in a handful of states it could still be days before there is a conclusive result.

In California, voters approved Proposition 22, a ballot measure that allows gig economy companies like Uber and Lyft to continue treating drivers as independent contractors. Uber’s share price jumped 10 percent on Wednesday and shares in Lyft rose nearly 12 percent.

“We’d caution anyone from reading too much into tech’s rise as a predictor of who will take the Oval Office,” Mike Loewengart, a strategist at E*Trade Financial, said in a note to clients. The jump in share prices could be driven by the increasing likelihood of a divided Congress, which puts a damper on hopes for increased regulation against this sector. And the victory for some of these companies in California regarding gig workers probably isn’t hurting them either. Elections are always somewhat of a circus, and this certainly isn’t an exception.”

Amid all the uncertainty of this election, tech stocks could arguably seen as a relatively safe asset for investors. The sector has consistently outstripped the rest of the market, which has been hampered by the pandemic. Last week, Amazon, Apple, Alphabet and Facebook reported a combined quarterly net profit of $38 billion.

Credit…Chang W. Lee/The New York Times

On Election Day, stocks surged as traders and investors anticipated a “blue wave” with Joseph R. Biden Jr. defeating President Trump and the Democrats gaining both houses of Congress. Stocks rose and U.S. Treasuries fell as traders ditched the traditionally safe asset.

Early Wednesday morning, markets flipped.

Stock futures fluctuated substantially as the reality set in that it could take days to get a clear result, while Mr. Trump tried to claim victory before all the votes were counted. But analysts were also watching Senate races, which no longer clearly indicated a Democratic majority. At 5:30 a.m. Eastern, Democrats and Republicans each had 47 seats.

But markets then turned sharply higher on Wednesday as traders found reasons for optimism — at least for today — in the uncertainty.

Here’s what analysts had to say early in the day:

There is confusion about what exactly Mr. Tump meant when he said votes should stop being counted, said Jane Foley, a strategist at Rabobank. But “there is some certainty,” she said. “The optimism about a blue wave was premature.”

“For the market, there is both good and bad news associated with the idea that Biden won’t have the blue wave through Congress,” Ms. Foley said. “On the one hand, there is disappointment that there isn’t going to be an end to this bickering between the House and the Senate in the near term,” which diminishes hopes of a large stimulus package. But on the other hand, it will be harder for Democrats to increase taxes.

“We expect market volatility to remain elevated until the result becomes clear,” Karen Ward, a strategist at J.P. Morgan Asset Management, wrote in a note to clients. “When it comes, the outcome will be primarily interpreted through the lens of the prospects for further fiscal stimulus. Politics are important, but other factors, most notably progress toward a medical solution for Covid-19, will also be key.”

“Markets, which had begun to factor in a Democrat sweep and a significant stimulus bill, are now reining in their growth expectations,” Keith Wade, an economist at Schroders, a London-based asset manager, wrote in a note to clients. “Estimates had suggested this could have been worth an extra 1 percentage point of growth in the U.S. next year.”

“My feeling is the market is probably willing to tolerate this through the end of the week,” said Eric Lascelles, chief economist at RBC Global Asset Management. “If it’s a matter of some legal wrangling beyond that — with only a limited prospect of truly changing the outcome — I think the market can live with that.”

“There is no result yet, and the chances of the ‘blue sweep’ expected by markets, is much smaller now,” Kit Juckes, a strategist at Société Générale, wrote in a note to clients. “That definitely means short-term uncertainty, until we get a result. It probably means less fiscal easing than would otherwise have been the case, and continued dependence on the Fed to prop up the economy, for longer.”


As the United States grappled with the uncertainty over the still-unresolved presidential election on Wednesday, the Gap tweeted an image of a half-red, half-blue hoodie bearing the brand’s logo, along with the caption, “The one thing we know, is that together, we can move forward.” Clicking the image showed the sweatshirt being zipped up.

The post, which was subsequently deleted, quickly went viral and was met with widespread mockery and criticism. “Read the room,” several users wrote. “Really? A red & blue hoodie is the healing ointment America needs?” one user posted. The model and food blogger Chrissy Teigen wrote, “yay, we can just walk sideways depending on the city we’re in.”

A representative for Gap, which has been working to increase the relevance of its brand, said the sweatshirt was not actually for sale and that the image had been created for social media.

“From the start we have been a brand that bridges the gap between individuals, cultures and generations,” the company said in a statement. “The intention of our social media post, that featured a red and blue hoodie, was to show the power of unity. It was just too soon for this message. We remain optimistic that our country will come together to drive positive change for all.”

The incident is likely to serve as a warning for other brands that may be considering offering commentary on the election.

Credit…Justin L. Fowler/The State Journal-Register, via Associated Press

Voters in Illinois rejected a proposal to increase tax rates on high earners, the centerpiece of Gov. J.B. Pritzker’s plans to address the state’s severe money problems.

The ballot measure didn’t come close to passing: As of Wednesday morning, 55 percent of voters opposed the measure. Under Illinois’s complicated rules for ballot measures, the tax change needed at least 50 percent support from all voters, including those that skipped the tax question.

Illinois has been plagued by multibillion-dollar budget deficits for years, despite a recent wave of other new taxes and fees on government services. To close the gap, Governor Pritzker, a Democrat, proposed altering the tax structure in the state, where everyone pays a 4.95 percent income tax.

The ballot measure would have instituted a graduated income tax to raise billions of new revenue. Governor Pritzker said the higher rates would have applied to the highest-earning 3 percent of the state’s residents. Everybody else would pay at the same rate or less.

Opponents said that the tax change would only paper over a profound fiscal imbalance, and that the higher tax rates would eventually be applied to middle-class residents, too.

“We are undoubtedly disappointed with this result but are proud of the millions of Illinoisans who cast their ballots in support of tax fairness in this election,” said Quentin Fulks, chairman of the Vote Yes for Fairness campaign. He warned that lawmakers would have to grapple with the state’s crushing budget deficit “without the ability to ask the wealthy to pay their fair share.”

Both sides spent extraordinary amounts for a nonpartisan ballot initiative.

Governor Pritzker, a billionaire heir to the Hyatt Hotels fortune, spent more than $56 million of his own money to promote the change, calling it “the fair tax.” Much of the opposition’s funding came from Kenneth C. Griffin, the founder and chief executive of the Citadel hedge fund group.

Illinois’s fiscal woes have been caused largely by lawmakers’ decades-old practice of granting rich pensions to public employees without setting enough money aside to pay them. The problem has become critical as more and more workers have retired and begun drawing their pensions.

Lawmakers have been trying to catch up the funding of the pension system, but in the process they have had to cut other spending and raise taxes, infuriating many residents. Despite the squeeze, the Illinois Supreme Court has ruled that any restructuring of the public pension system would be unconstitutional.

Credit…Chang W. Lee/The New York Times

For all the criticism that Facebook, Twitter and YouTube endured over their failures to curb disinformation during the 2016 election, their response this time on Election Day was largely smooth.

The social platforms said they would not allow a political candidate to make misleading statements about the outcome of a race. So when President Trump falsely claimed on Twitter and Facebook early Wednesday that the election was being stolen, the companies labeled his message to indicate it was disputed and that there was no winner yet.

Facebook also added a notification at the top of News Feeds to say there was no official election result after Mr. Trump spoke early Wednesday from the White House declaring himself the victor.

“What we actually saw on Election Day from the companies is that they were extremely responsive and faster than they’ve ever been,” said Graham Brookie, the director of the Atlantic Council’s Digital Forensic Research Lab. “Outside of the unknowns, the platforms were proactive and prepared for the inevitable — which was disinformation about the results of the election from Donald Trump.”

Still, the biggest tests for Facebook, Twitter and YouTube are looming, misinformation researchers said. Votes are still being counted and the outcome of the presidential race remains unclear, but that gap presents many opportunities for false narratives, they said.

Already on Wednesday morning, Twitter applied a label to a post by Ben Wikler, head of the Democratic Party of Wisconsin, which asserted prematurely that Joseph R. Biden Jr. had won in the state. The company also added a label to a new tweet from Mr. Trump, in which he claimed his early leads in Democratic states “started to magically disappear.” Twitter also prevented the post from being shared by other users.

“As votes are still being counted across the country, our teams continue to take enforcement action on tweets that prematurely declare victory or contain misleading information about the election broadly,” a Twitter spokesman said in a statement.

Credit…Mark Von Holden/Associated Press

Proposition 21, a California initiative that would have given local authorities more leeway in setting rent control policies, was decisively defeated on Tuesday. It was the second time in two years that California voters rejected expanding rent control even as the state contends with high housing costs and homelessness.

With nearly three-quarters of the votes counted, barely 40 percent favored the initiative.

Like most states, California restricts rent regulation at the local level. Though it does not forbid rent control, the state has for 25 years prohibited cities from limiting rent increases on vacant units and on single-family homes and apartments built after 1995.

Proposition 21 would have amended state law so that rent control could be applied more broadly, to newer and vacant units. The campaign was funded almost entirely by the AIDS Healthcare Foundation in Los Angeles and was a close cousin of a 2018 measure that was also rejected.

Rent control has become a hotly debated issue over the past few years as the nation’s affordable-housing crisis has grown.

Last year, Oregon became the first state to pass statewide rent control. California soon followed.

Pushed by tenants’ groups, California’s bill limited annual rent increases to 5 percent after inflation — with exemptions for dwellings less than 15 years old and most single-family homes — and offered new barriers to eviction. It affected an estimated eight million tenants, was supported by Gov. Gavin Newsom and the California Business Roundtable. Unlike the two ballot propositions, it was unopposed by the state’s biggest landlords’ group.

Credit…Samuel Corum for The New York Times

The U.S. Department of Commerce announced Wednesday that it would impose tariffs of 6.23 to 10.08 percent on car and truck tires imported from Vietnam, saying the country was undervaluing its currency to make its products cheaper in the United States.

This is the first time the Commerce Department has considered the value of a foreign currency in this kind of trade case. The so-called countervailing duty case, which was initiated by a petition from the AFL-CIO union, centers on whether Vietnam used unfair subsidies to help its producers sell goods abroad, including employing an undervalued currency that made its goods relatively cheap.

“Today’s preliminary determination represents an important step forward for the America First trade agenda,” Wilbur Ross, the commerce secretary, said in a statement.

The Trump administration, along with congressional Democrats, have shown increasing interest in focusing on foreign currencies as part of U.S. trade policy. They claim that undervalued foreign currencies, and a strong dollar, have cut into the export potential of the United States and resulted in large trade deficits with other countries. But critics say determining whether a particular currency is undervalued can be complex.

The Trump administration has also begun a separate investigation into Vietnam’s trade and currency practices, which could result in other tariffs being placed on the country.

The countervailing duties announced Wednesday could still be reversed. The Commerce Department said it would make its final determination in the case on or around March 16, 2021, and the U.S. International Trade Commission, which has the final say in trade cases, will make its last determination on or around April 30, 2021.

Until then, the U.S. Customs and Border Protection will collect the tariffs from importers of Vietnamese tires at the border.

Credit…Jim Wilson/The New York Times

California voters on Tuesday approved Proposition 22, a ballot measure that allows gig economy companies like Uber and Lyft to continue treating drivers as independent contractors.

The vote opens a path for the companies to remake labor laws throughout the country.

Uber, Lyft and the delivery service DoorDash intended the measure to exempt the companies from a state labor law that would have forced them to employ drivers and pay for health care, unemployment insurance and other benefits. As a concession to labor advocates, the initiative offers a wage floor and limited benefits to drivers.

The Associated Press projected early Wednesday that Prop. 22 had carried 58 percent of the vote. It faced the strongest opposition in San Francisco, where Uber and Lyft have headquarters, with more than a 19-point deficit. The fight pit labor groups and state lawmakers against ride-hailing and delivery start-ups that spent $200 million in support of the measure.

Stock prices in the ride-hailing companies soared on Wednesday, each gaining around 10 percent.

With the gig work model cemented in California, Uber and other gig economy companies are expected to pursue federal legislation that would protect them from similar employment laws in other states.

“The last 14 months in California have been the most critical point on this issue,” said Bradley Tusk, a venture capitalist who advised Uber on political issues during its early years.

Still, their victory comes as federal lawmakers and officials are increasingly eager to take on Big Tech. Members of Congress in both parties support cracking down on social media companies and reining in the likes of Amazon and Google. Uber and its gig economy peers could be caught in that anti-tech sentiment.

Credit…Joe Raedle/Getty Images

Voters in Florida on Tuesday approved a ballot measure that would raise the state’s minimum wage to $15 by 2026.

Florida becomes the eighth state in the country to enact a minimum wage of $15, according to the National Conference of State Legislatures, but the first of them that Donald Trump carried in the 2016 presidential election. The District of Columbia has also enacted a $15 minimum wage.

Florida’s measure, known as Amendment 2, earned a place on Tuesday’s ballot in December and needed at least 60 percent of the vote to pass. With 99 percent of the vote counted, the measure had slightly more than 61 percent.

Under the measure, the state minimum wage would rise from its current hourly rate of $8.56 to $10 in September, and then increase by $1 every September through 2026. After that, annual increases would be tied to inflation.

A study by the Florida Policy Institute, a think tank backing the increase, found that the higher wage would directly benefit 2.5 million workers in the state.

A number of studies have found that moderate increases in the minimum wage have not led to significant job losses. But economists caution that the effects on employment depend on the size of the increase relative to a city or state’s wage scale.

That could make a $15 minimum wage more costly in a state like Florida, where wages tend to be substantially lower than wages in other states that have enacted a $15 minimum wage.

Credit…Jenny Kane/Associated Press

Voters in California passed a ballot measure on Wednesday that will establish a stand-alone state privacy watchdog to take on Big Tech and other companies that amass consumers’ personal information, The Associated Press projected.

Californians voted to set up the landmark agency as part of Proposition 24, a ballot measure that widens data rights for consumers.

The measure is intended to strengthen and clarify the California Consumer Privacy Act, a sweeping new law that took effect this year and that gives people the right to see, delete and stop the sale of the personal information that companies have compiled about them. The new agency will be in charge of enforcing the consumer privacy law, an effort currently overseen by the office of California’s attorney general, Xavier Becerra.

Prop. 24 gives Californians the right to limit the use of sensitive personal information, such as details about their race, ethnicity, religion, health, genetic information, sexual orientation, finances and their precise locations. It also gives people in the state the ability to opt out of having their details shared with third parties.

The measure sharply divided consumer and civil rights experts, with some opponents, like the American Civil Liberties Union, charging that it would undermine privacy by putting undue burdens on consumers to opt out of having their data shared and sold. But proponents of the measure hailed it as a major advance for consumers.

Carmen Balber, the executive director of the Consumer Watchdog, a nonprofit group, compared the new state regulator — to be called the California Privacy Protection Agency — to the creation of the Consumer Financial Protection Bureau, the federal agency established to ensure that financial services fairly treat consumers.

Oil prices rose Wednesday as the results of the U.S. presidential election remained uncertain. Brent crude, the international benchmark, and West Texas Intermediate, the American standard, were up about 3.5 percent.

Oil prices, which had risen as much as 2 percent in the evening on Election Day, slumped after President Trump said that he had won, even though several battleground states have not yet reported results. The prices quickly recovered.

With no clear outcome in the United States, traders reacted to other news, including industry data published Tuesday showing a sharp fall in stockpiles of crude oil in the United States. This drop may indicate that economic recovery from the pandemic in the country, the world’s largest oil consumer, may be stronger than expected. Concerns had been growing that new lockdowns in countries like Britain, France and Germany might curb oil consumption.

In addition, hopes are increasing that OPEC and Russia may agree to curb output further or at least defer increases that are planned from the beginning of next year.

Over the longer term, analysts say, a victory for Joseph R. Biden Jr. might have negative implications for oil prices. Mr. Biden, for instance, has said he would push for a transition away from oil to greener forms of energy, leading to reduced consumption of fossil fuels. He might also try to revive the nuclear deal with Iran that the Trump administration torpedoed, eventually bringing a flood of Iranian crude back on the market.

Mr. Trump has been a strong advocate for the oil industry in the United States, pushing for deregulation and looser environmental standards. Earlier this year, he leaned on OPEC and Russia to trim production to bolster prices in the United States.

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