Four days of big gains put the S&P 500 just 2% below its all- time high

November 5, 2020, 10:06 PM UTC

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Those awaiting the outcome of the vote tally in the remaining swing states may be biting their nails this week, but investors are nothing but euphoric.

Stocks soared again Thursday, capping off a week that has seen gains since Monday of 6.2% in the Dow, 6.4% in the S&P 500, and 7.8% in the Nasdaq. Thursday alone saw the Dow close 1.8% higher at 28,390, the S&P close 1.9% higher at 3,510, and the Nasdaq rise 2.6% to close at 11,891. Four days in, this marks the best week for the markets since the first week in April, a four-day spring trading week that saw the S&P 500 gain 12.7% as it bounced off pandemic-induced lows.

This week’s strong showing puts the S&P 500 just 2% shy of its all-time high, a remarkable feat given that the presidential race has not yet been called, the U.S. keeps marking grim new COVID milestones, and many places in Europe have reimposed lockdowns.

So why the euphoria? Many on Wall Street have cited a “relief rally” given the increasing odds that we may see a Democrat in the White House and a Republican-controlled Senate.  As LPL’s Jeff Buchbinder told Fortune’s Anne Sraders on Wednesday, “Stocks tend to like gridlock and taking out major policy disruption.” There is some historical basis for this: Stocks do tend to perform best under a divided Congress. Since 1950, according to LPL, they’ve averaged gains of 17.2% under a divided scenario, 13.4% under a Republican Congress, and 10.7% under a Democratic-controlled Congress.

However, as Fortune’s Aric Jenkins reported, the Democrats’ hopes of making gains in the Senate are not quite dead yet. There are still five uncalled Senate races, and if the Democrats somehow managed to win three of those and Joe Biden prevails, a Vice President Kamala Harris could be the 50–50 tiebreaker.

Still, the dimmed prospect of higher corporate taxes or heavy regulation that might have been expected under a “blue wave” scenario has led to particular exuberance among tech investors. Wedbush’s Dan Ives is even predicting that tech stocks could see a 10% to 15% gain from here if Biden takes the White House and the Senate stays in Republican hands.

There is, however, still much hand-wringing about what the election results may mean for another stimulus package. On Wednesday, Senate Majority Leader Mitch McConnell (who secured reelection) said at a news conference, “We need another rescue package. The Senate goes back into session next Monday. Hopefully the partisan passions that prevented us from doing another rescue package will subside with the election. And I think we need to do it and I think we need to do it before the end of the year.” McConnell added that aid for state and local governments could be on the table. That would mark a big shift, as that was one of the key points of disagreement during months of negotiations between House Speaker Nancy Pelosi and White House Republicans.

In the meantime, traders cheered four days of gains and held out hopes that Friday would end the week on a high note. In the words of CFRA’s Sam Stovall, “Wall Street’s positive response to the yet-to-be-decided election implies that investors think gridlock is good.”

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