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Heading into the U.S. presidential election, markets loathed the idea of uncertain results and gridlocked leadership. Now, they love it.

Financial markets shrugged off the lack of clarity on Wednesday, with neither Donald Trump nor Joe Biden declared a winner during regular trading hours, as major stock benchmarks posted solid gains, bond yields declined and the Canadian dollar held steady.

The S&P 500 rose 2.2 per cent, continuing a strong rebound in recent sessions after ending last Friday with its biggest one-week decline since March, with large technology stocks leading the way.

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“Risk-taking was pretty cautious in the week or two leading up to the election. Now that there is a pathway through this contest and what the political environment will look like in the United States … that has given some confidence and certainty to bring some risk appetite back to the market,” Mike Pyle, global chief investment strategist at BlackRock, said in an interview.

During trading on Wednesday, the winner in a number of battleground states had yet to be decided in the tightly contested U.S. election between Mr. Trump and Mr. Biden – a process that could take days, or even longer, as mailed-in and absentee ballots are counted.

The results dashed hopes for a clear winner, which many observers had believed would be the ideal result for financial markets heading into the election.

However, a number of observers believe that uncertainty, along with potential gridlock in Washington, won’t stand in the way of a deal on a new fiscal stimulus package, but could prevent increases to corporate and capital-gains taxes.

Andy Laperriere and Donald Schneider of Cornerstone Macro, a research firm based in New York, said in a conference call that the most likely scenario as things now stand – a Biden presidency, with a Republican Senate and a Democratic House of Representatives – is actually the best configuration for the market in the medium term.

That’s because it removes the unpredictability of Mr. Trump, while reducing the chance of strong tariff policies and diminishing the odds of any meaningful tax increases.

The results bode particularly well for technology stocks, now that it appears unlikely that Democrats will take control of the White House, the House of Representatives and the Senate, in what observers call a “blue wave.”

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“The big blue wave meant stimulus, and the markets would have liked that out of the gate,” Kevin McCreadie, chief executive officer and chief investment officer at AGF Management, said in an interview. He pointed to the broad economic benefits of a stimulus package as large as US$3-trillion that would have weighed on tech stocks but lifted struggling sectors of the market.

“What you’re seeing today is a reverse of that trade,” Mr. McCreadie added.

Under a scenario where Mr. Biden wins narrowly and the Senate is held by the Republicans, it is hard to envision significant tax changes or huge stimulus, which should benefit tech companies given their ability to perform well even in a slow-growing economy.

The tech-heavy Nasdaq Composite Index surged 3.9 per cent. Inc. rose 6.4 per cent, Alphabet Inc. (Google’s parent) rose 6 per cent and Facebook Inc. rose 8.5 per cent.

But while tech stocks rose sharply, banks lagged. JPMorgan Chase & Co. fell 3.1 per cent.

Broad stock-market gains were not limited to U.S. benchmarks. Canada’s S&P/TSX Composite Index rose 0.4 per cent. Overseas, Britain’s FTSE 100 and Japan’s Nikkei 225 each rose 1.7 per cent.

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Government bond yields, which had been rising in anticipation of ramped-up stimulus spending if Democrats turned in a resounding victory, declined instead.

The yield on the 10-year U.S. Treasury bond fell to 0.775 per cent, down 12.3 basis points. There are 100 basis points in a percentage point; bond yields and prices move in opposite directions.

“Remember that in recent weeks, market fluctuations were tied to three issues. In addition to the election, the other two politically tied movers were related to prospects for a stimulus bill, and news on the economy’s current nemesis, the coronavirus,” Avery Shenfeld, chief economist at CIBC World Markets, said in a note.

He expects that even if the Republicans maintain control of the White House and Senate, Washington could end up compromising on a stimulus bill before the end of the year, even if the aid package is smaller than what Democrats had hoped for in the lead-up to the election.

As for the surge in COVID-19 infections, completed election results could mean that the highly politicized response to the pandemic subsides as results from vaccine trials emerge, possibly later this month.

With a report from Ian McGugan

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Read more:

Market movers: Stocks that saw action on Wednesday – and why

Renewable energy, pot stocks top losers as election results leave Wall Street hanging

‘There is going to be a wave of uncertainty’: What market observers are saying about the U.S. election

Whoever triumphs, investors see China, green and easy money bets as election winners

Finance executives fret as U.S. presidential election too close to call

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