US markets are turbulent as Election Results Roll In

After rallying on Election Day, financial markets swung wildly on Tuesday night as voting results indicated that the outcome of the U.S. presidential election could remain unclear for longer than investors had hoped.

Earlier in the day and into the evening, investors seemed to be betting that a victory for Democrats could set the stage for a large pandemic relief spending package in Washington early next year. That could bolster the economy, fueling consumer spending and cushioning growth even as coronavirus cases surge again. It would also mean big deficits in the near term, potentially pushing longer-term interest rates higher.

But financial markets were whipsawed as traders and pundits saw states leaning toward President Trump and Republican Senate candidates. On one hand, Mr. Trump’s low taxes and limited regulation have been popular among investors. On the other, analysts have been clear that a divided government could hurt the chances for a big spending package. Investors might also be wary that delayed vote counts could lead to a long period of uncertainty.

Futures on the S&P 500 Index oscillated between gains and losses as East Coast tallies came in, after the index gained 1.8 percent in regular U.S. trading on Tuesday.

But by about 10:30 p.m. in New York, stock futures were sharply higher. Government bond yields plunged before beginning to bounce back.

“This is going to be a long night, and possibly a long couple of days,” said Gennadiy Goldberg, a rates strategist at TD Securities in New York. “It is going to be a closer race than markets anticipated.”

In other markets, Japanese stocks were higher while stocks in mainland China and Hong Kong were slightly higher after recouping early losses.

It could take hours — if not days — for many states to report final tallies. More than 100 million votes were cast before Tuesday, and states have different processes for how to count mail-in ballots with some waiting until after Tuesday’s votes are counted.

“In the morning, it’ll be about the important states,” Mr. Goldberg said, pointing to Pennsylvania, Michigan and Wisconsin, which are not expected to call the election right away. “That’s what we’re watching — how close it is, what is the likelihood of a contested election.”

Mr. Goldberg said that he and his colleagues are watching for two things — “process risk” and “outcome risk.”

By “process risk,” he meant the possibility that election results will not be clear quickly either because races are too close to call or not fully reported, or because there are legal challenges to the results. By “outcome risk” he meant the various ways the results could play out: With Mr. Trump re-elected, with former Vice President Joseph R. Biden Jr. elected, and with a Democratic- or Republican-controlled Senate.

“A contested — or a confrontational — Senate or presidential outcome is the most negative” possibility, said Guy LeBas, chief fixed-income strategist at Janney Capital Management. But the ways the votes break will matter for the intermediate outlook.

On Tuesday night, markets already appeared to be adjusting to the possibility that Democrats might not win decisively.

Over recent weeks, yields on longer-dated Treasury securities had climbed, which many speculated was a sign that investors expected a “blue wave” in which Democrats won the White House and Senate and passed a big fiscal spending package that would lead to the issuing of substantial government debt. But yields dipped sharply lower in Asian trading around 9:30 p.m. New York time, then reverted only partly.

Voters in Florida on Tuesday approved a ballot measure that would raise the state’s minimum wage to $15 by 2026.

Florida becomes the eighth state in the country to enact a minimum wage of $15, according to the National Conference of State Legislatures, but the first of them that Donald Trump carried in the 2016 presidential election. The District of Columbia has also enacted a $15 minimum wage.

Florida’s measure, known as Amendment 2, earned a place on Tuesday’s ballot in December and needed at least 60 percent of the vote to pass. With 99 percent of the vote counted, the measure had slightly more than 61 percent.

Under the measure, the state minimum wage would rise from its current hourly rate of $8.56 to $10 in September, and then increase by $1 every September through 2026. After that, annual increases would be tied to inflation.

A study by the Florida Policy Institute, a think tank backing the increase, found that the higher wage would directly benefit 2.5 million workers in the state.

A number of studies have found that moderate increases in the minimum wage have not led to significant job losses. But economists caution that the effects on employment depend on the size of the increase relative to a city or state’s wage scale.

That could make a $15 minimum wage more costly in a state like Florida, where wages tend to be substantially lower than wages in other states that have enacted a $15 minimum wage.