Stocks Climb as Treasuries Drop Amid Georgia Race: Markets Wrap

(Bloomberg) -- Stocks rallied and bonds dropped amid key elections in Georgia that will decide which party controls the U.S. Senate for the next two years, setting the scope of President-elect Joe Biden’s agenda.

In a session marked by thin trading volume, the S&P 500 rebounded after suffering its worst start to a year since 2016. Energy stocks surged as oil traded near $50 a barrel, and the Russell 2000 Index of smaller companies jumped more than 2%. While markets have been factoring in a greater chance of a Democratic sweep in Tuesday’s election, some analysts see the potential for increased volatility. In anticipation to the outcome of the vote, which will likely be known on Wednesday, Treasury yields climbed -- with a key curve measure reaching its steepest level in four years.

Whether or not Wall Street is getting more comfortable with the idea of a blue sweep in Congress, the scenario implies the possibility of a more generous stimulus package. That could also potentially lead to upward pressure on inflation and interest rates as well as higher taxes to pay for fiscal aid. Conversely, should either Republican incumbent win re-election, the party would have enough votes to block any Biden initiative.

“We don’t view a Democrat Senate as a bearish game changer in the short term because there would still be a lot of positives in this market,” Tom Essaye, a former Merrill Lynch trader who founded “The Sevens Report” newsletter, wrote in a note to clients. “We’d look to buy on any material dip, but we should brace for more volatility going forward if that’s the outcome from today’s election.”

Meanwhile, President Donald Trump failed again to invalidate his election loss in Georgia and allow the state’s Republican-led legislature to declare him the winner -- his latest courtroom defeat in a quixotic effort to remain in office despite losing the Nov. 3 vote.

Another news development that caught investors attention on Tuesday was the New York Stock Exchange’s surprise decision to spare three major Chinese telecommunications companies from being delisted. Several U.S. officials said the move marks a temporary reprieve, not a sign that tensions between Washington and Beijing are easing.

What to watch this week:

• U.S. Congress meets to count electoral votes and declare the winner of the 2020 Presidential election Wednesday.
• FOMC minutes out Wednesday.
• U.S. unemployment report for December is due Friday.

These are some of the main moves in markets:

Stocks

• The S&P 500 rose 1% as of 2:32 p.m. New York time.
• The Stoxx Europe 600 Index declined 0.2%.
• The MSCI Asia Pacific Index climbed 1%.

Currencies

• The Bloomberg Dollar Spot Index sank 0.5%.
• The euro increased 0.4% to $1.2299.
• The Japanese yen appreciated 0.4% to 102.67 per dollar.

Bonds

• The yield on 10-year Treasuries increased four basis points to 0.96%.
• Germany’s 10-year yield rose three basis points to -0.58%.
• Britain’s 10-year yield rose four basis points to 0.209%.

Commodities

• West Texas Intermediate crude surged 5% to $50 a barrel.
• Gold strengthened 0.4% to $1,950.22 an ounce.

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