Wall Street expressed relief over an election that left Democrats and Republicans with a share of power in Washington, sending the Dow industrials soaring nearly 100 points Wednesday as records were shattered on the stock market.
But the dollar turned in a mixed performance in foreign exchange markets, where some traders sold the U.S. currency to cash in on its Election Day gains. Interest rates nudged higher in choppy bond market trading after falling to seven-month lows Tuesday in anticipation that a Democrat would remain in the White House and Republicans would keep control of Congress.
The applause over the election’s outcome stretched to stock markets overseas. Tokyo’s Nikkei stock average jumped 1.9 percent, Frankfurt’s DAX index rose 1.4 percent, and London’s FT-SE 100 was up 0.4 percent.
For stock market traders, the status quo was a welcome development, even if it portends more clashes on government spending.
“The market does not like change,” said Alfred E. Goldman, a vice president at A.G. Edwards & Sons Inc. in St. Louis. “So, it got exactly what it wanted - four more years of gridlock.”
The Dow Jones industrial average of 30 blue-chip stocks soared 96.53 to a record 6,177.71, a 1.59 percent increase. The previous record of 6,094.23 was set Oct. 18.
But the U.S. Treasury market was less impressed. Bond prices ended lower following a rally on Tuesday and some small gains early Wednesday. The bellwether 30-year bond was off around $3.75 per $1,000 face value, while its yield rose to 6.61 percent from 6.58 percent late Tuesday.
Market watchers said traders had driven up the market in anticipation of Tuesday’s outcome and now opted to profit from those past price increases. They also blamed the decline on a luke-warm reception for Wednesday’s $10 billion auction of 10-year Treasury bonds.
For weeks, the financial markets had planned on a second-term victory by President Clinton and continued Republican majority in the Senate and House because it meant both sides would keep each other and government spending in check.
“If the president backs away from making these very tough decisions to reduce spending in entitlements like Medicare or Medicaid, you can bet the Republican Congress will hold his feet over the fire,” said Hugh Johnson, senior vice president for First Albany Corp. in Albany, N.Y.
“If the president introduces any initiatives for social reform that cost money, you can bet that they’ll be blocked, too.”
Johnson said the market was hopeful both sides will work together to reduce the federal budget deficit and to keep inflation at bay, though it was inevitable they will continue to lock horns over budgetary policies, just as they had in the past.
“We’re likely to have more gridlock,” he said.
Goldman said a steady economy and an overall bullish market would bode well for U.S. stocks in the days ahead, but he predicted that in the near future, the market would eventually “cool down a little … to look at the big picture.”
Richard Rippe, chief economist for Prudential Securities, also predicted no dramatic shifts in the markets or economy in the long term.
“Rapid changes are unlikely because the economic conditions are reasonably satisfactory,” he said, noting that inflation remains moderate and economic growth healthy - two factors that helped Clinton’s re-election.