US stock market rebounds ahead of election day

Wall Street shares staged a rebound on Monday following last week’s rout, with investors repositioning their portfolios as Joe Biden holds a strong lead in national polling ahead of election day.

The blue-chip S&P 500 closed higher by 1.2 per cent, having lost 5.6 per cent last week in what was the index’s worst weekly performance since March. Leading the index were stocks in the basic materials and industrials sectors, as investors bet these areas would benefit from the increased infrastructure spending pledged by Mr Biden, should he become president.

The tech-focused Nasdaq, which started the session more than 1 per cent higher, fell back to a 0.4 per cent gain for the day. Analysts believe a blue-wave victory, where Democrats take control of both houses, could usher in more regulation of big tech businesses such as Facebook and Google.

Polls compiled by the FT’s election tracker suggest Mr Biden can count on at least 252 electoral college votes against Donald Trump’s 125. A candidate needs 270 electoral college votes to win the presidency. The Democratic candidate is also narrowly ahead in large battleground states including Michigan and Pennsylvania, while the polls in Florida and Georgia are closer.

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Mr Biden plans to unleash a large government spending programme to combat the effects of coronavirus on the world’s biggest economy. Deadlock between the Democrat-controlled House of Representatives and the White House scuppered hopes of a pre-election fiscal stimulus package.

“There is a bit of relief about Biden being ahead in the polls in the last weekend before the election,” said Emmanuel Cau, head of European equity strategy at Barclays. “There’s also bottom fishing, with a bunch of large investors using last week’s correction to add risk.”

Esty Dwek, head of global market strategy at Natixis Investment Solutions, said that investors were also optimistic ahead of the Federal Reserve’s November 4 meeting.

The US central bank might signal willingness to “top up” its asset purchases, she said. “It would be surprising for the Fed to make a big move quickly after the election but I expect them to take a dovish tone.”

In Europe, the region-wide Stoxx 600 gained 1.6 per cent, led higher by economically sensitive value stocks — companies with high dividend yields or low price-to-book ratios — that have been hit hard by the pandemic after more than a decade of dismal performance.

Energy shares were the best performers on the Stoxx, followed by financials and industrials. “We’re seeing a bit of chasing of value now,” said Mr Cau. “If you have less [economic] uncertainty after the election, that might provide more of a rotation towards value.”

The gains for European equities also came after IHS Markit’s purchasing managers’ index for the manufacturing sector — which collates survey responses from factory bosses about orders and sentiment — hit its highest reading in September since July 2018.

The optimism helped to reverse a sharp drop in oil prices during the Asian and European sessions.

Brent crude dropped as much as 4.6 per cent to $35.74 a barrel on Monday, hitting its lowest level since May as economists downgraded their European growth forecasts in response to the rollout of tighter virus restrictions throughout the eurozone. By the close of trading in New York, the global benchmark had recovered to trade nearly 5 per cent higher at $39.31.

West Texas Intermediate, the US marker, fell as much as 6 per cent to $33.64 a barrel in the Asian session before rebounding to show a 3.7 per cent gain at $37.11.

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