The outcome of the presidential election remained uncertain during Thursday's session, and traders celebrated by pushing stocks to near 52-week highs.
Challenger Joe Biden's lead over President Trump -- and the Democrats' likely failure to seize control of the Senate -- was the proximate cause for jubilation, thanks to the prospect of a divided government. It's an old saying on Wall Street that the best government is a divided government because nothing much that threatens corporate profits can get done.
The likelihood of a divided government is especially pleasing to investors in the nation's biggest tech companies, which otherwise might have been targeted for sweeping new regulations or even broken up altogether. Apple (AAPL), Microsoft (MSFT), Facebook (FB) and Amazon.com (AMZN) all rallied at least 2.5% to help the tech-heavy Nasdaq Composite lead the major indexes higher with a 2.6% gain to 11,890.
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Another shot of market-friendly news came from the Federal Reserve, which kept target rates unchanged at what is essentially 0%. Strong gains by Microsoft and Apple also helped lift the blue-chip Dow Jones Industrial Average, which added 2.0% to close at 28,390, while the broader S&P 500 rose 2.0% to 3,510.
Other action in the stock market today:
- The Russell 2000 rose 2.8% to 1,660.
- U.S. crude oil futures fell 1.7% to $38.50 per barrel.
- Gold futures gained 2.8% to $1,948.60 per ounce.
Don't Let the Rally Fool You
It may have felt like a "risk-on" kind of trading day, but investors would do well to avoid succumbing to irrational exuberance and stick to their long-term plans.
A divided government is not a guarantee of strong market performance going forward, and rising cases of COVID-19 could make for a painful winter. Although there's reason to expect certain stocks and sectors to do better under a Biden presidency, they could just as well struggle if Senate resistance prohibits progress on favorable Biden policies.
The same caution is warranted with 2021's hottest initial public offerings. IPOs are generally too risky for most retail investors to bother with in the first place, and the potential for protracted struggles in D.C. over everything from taxes to environmental policy makes them even more so.
The steady play for long-term investors: High-quality dividend growth stocks. They require patience, but, given time, their rising yields can more than make up for lighter payouts in the present.
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