Futures contracts signalled US stock markets were heading back towards the record highs they reached this summer, as investors bet on a fresh government bailout for the world’s largest economy after the November presidential election.
Contracts that wager on the future direction of the S&P 500 rose 0.6 per cent, while those on the technology-focused Nasdaq gained 0.8 per cent.
This pointed to the S&P opening at its highest since September 3, propelled by fresh hopes about fiscal stimulus, which have almost erased a downturn last month caused by a tumble in tech shares.
America’s two major political parties remain billions of dollars apart on the size of a second fiscal package to limit the economic damage wrought by coronavirus.
But polling leads for Democratic candidate Joe Biden ahead of the election have boosted hopes that his party, which has already agreed a $2.2tn plan to revitalise the pandemic-scarred economy, could open the spending taps soon after the election.
According to the Financial Times’ poll tracker, if the election were held today Mr Biden would win 279 electoral college votes compared with 125 for Mr Trump.
Trevor Greetham, investment strategist at Royal London Asset Management, said markets were “starting to look through” the two-party debate over stimulus, given “Joe Biden’s widening lead in the polls”.
Markets were “increasingly seeing the prospect of Democrats taking control of both houses”, added Sean Markowicz, investment strategist at Schroders. “That will be good for stimulus.”
Companies listed on the S&P 500 are expected to report a 21 per cent year-on-year decline in earnings for the third quarter, according to Generali Investments. This would be their worst performance since the second quarter of 2009, at the height of the credit crisis, data compiled by FactSet show.
But the prospect of a corporate earnings recovery, “triggered by policy support”, would “remain the dominant theme for investors in the next months”, said Michele Morganti of Generali.
Buoyed by positive sentiment in US markets, European equities traded around their highest level in almost three weeks.
The region-wide Stoxx Europe 600 index was up 0.6 per cent by mid-morning, while Frankfurt’s Xetra Dax climbed as much as 0.9 per cent in early trading, before falling back to be 0.7 per cent higher.
Oil prices also climbed, with Brent crude up more than 1 per cent to more than $42 a barrel.
In debt markets, US government bonds traded steadily on Thursday morning, with the yield on 10-year US Treasuries 0.02 percentage points lower at 0.77 per cent.
The 10-year Treasury yield is hovering at about a four-month high while the 30-year yield is around a three-month peak. The rise in yields, which move inversely to prices, comes as traders anticipate that the supply of US government debt will increase in the event of a prospective Democrat administration raising money for stimulus spending.
“We’ve seen the yield curve steepen as the expectations around a Democratic victory and the borrowing that would entail have increased,” said Christopher Jeffery, head of inflation and rates strategy at Legal & General Investment Management. The government’s short-term borrowing costs would be pinned down by the Federal Reserve’s plan to keep interest rates low, Mr Jeffery added, but funding more than $2.2tn of stimulus would involve Washington “borrowing at all maturities” in the bond market.