There is a strong divergence in US stock market futures today. While the tech-heavy Nasdaq is up almost 2.5%, the Russell 2000 futures are down almost 2%. The Dow Jones was also slightly in the red while the S&P 500 was up around 0.4%.
US stock markets react to the election results
There is a tight race between Donald Trump and Joe Biden in the presidential elections. Given the high percentage of mail-in ballots, the election results would take a few more days to get clear. Meanwhile, the tight race has also raised the possibility of a contested election.
The last time US election results were contested was 20 years back when Democratic candidate Al Gore contested the results. US stock markets had fallen between the election data and the year end. However, several other factors were at play then including disappointing earnings from corporate giants.
Trump declares victory
Meanwhile, while the results from key battleground states are still awaited President Trump has already declared victory. US stock market futures have whipsawed amid a tightening race for the next US president. While the Russell 2000 futures, that has midcap constituents is down slmost 2%, the tech-heavy Nasdaq is up over 2%. It is quite unusual to see such divergence in the US stock market futures.
That said, looking at the uncertainty over US election results, investors seem to be finding solace in tech stocks. Tech stocks were volatile last week as four giants Apple, Amazon, Facebook, and Alphabet reported their earnings. Apple was especially under pressure as its iPhone sales disappointed markets even as the consolidated revenues and earnings were ahead of analysts’ estimates.
Tech stocks have driven US stock markets higher in 2020
Tech stocks have risen to record highs this year driving the US stock markets higher. The divergence in futures today is a reflection on how the uncertainty unleashed by the COVID-19 pandemic has hit the US corporate sector.
Tech stocks have shined during the uncertainty while cyclicals and industrials especially those in the mid and small cap space have underperformed. The election results are only adding to the uncertainty that is negative for cyclical and high beta stocks.
Would a contested election lead to a stock market crash?
With an increasing possibility of a contested election, we could see a sell-off in the US stock markets. But, Big Tech stocks could still outperform as their business models are largely independent of the electoral uncertainty. However, the sectors like airlines that are vouching for the next round of stimulus could especially be under pressure. US airline companies announced thousands of furloughs last month after the previous round of stimulus ended.
Could gold emerge as a winner amid volatile stock markets?
James Rasteh, CIO of Coast Capital believes gold as well as gold miners could shine irrespective of the election results. “We would be printing trillions of dollars more and all of that ultimately has extraordinarily positive repercussions for gold,” said Rasteh. He added, “The fiscal and monetary policies would be almost identical under either leadership. I think that the differences that are being delineated are really more imaginative than real.”
It’s worth noting that gold miners’ stock prices are outperforming the broader stock markets this year. While the yellow metal has come off its 2020 highs, it is still up sharply for the year.
Making his case for gold, Rasteh said, “We are discovering a lot less gold than we are producing,” and over the next decade “we will be producing 50% less gold than we do today.”
How to buy gold?
You can buy gold either in physical form or in digital form. You can buy the yellow metal through any of the reputed brokers for gold. Alternatively, you can also trade in precious metals through CFD (Contract for difference). We’ve compiled a list of some of the best CFD brokers.
If you are looking at investing in gold miners, you can either invest in individual stocks through any of the reputed online stock broker. If you are not well versed with gold mining companies, and still want to have exposure to them, you can consider ETFs that invest in gold miners.
By investing in an ETF, you get returns that are linked to the underlying index after accounting for the fees and other transaction costs. There is also a guide on how to trade in ETFs.