Stocks opened higher Wednesday and didn’t look back as a post-election buying frenzy gripped investors.
The Dow Jones Industrial Average soared 545 points to gain more than 2% on the day. Meanwhile, the tech-heavy Nasdaq Composite blazed the comeback trail with a gain of more than 2.6%.
All the major averages are now back above their respective 200-day moving averages following yesterday’s big rally.
Could yesterday’s action mark the return of the bulls? Or are these gains just a temporary overreaction to a relatively mundane election cycle?
Let’s try and find some answers…
First, it’s important to note that yesterday’s buying wasn’t just fueled by post-election euphoria.
In fact, strong earnings helped propel stocks from one beaten-down sector back to new highs.
Software stocks stole the show yesterday thanks in part to huge beats from Tableau Software Inc. (NYSE:DATA) and Twilio Inc. (NYSE:TWLO).
Tableau beat earnings estimates (but missed on revenue), earning an analyst upgrade and propelling shares to a gain of more than 15% on the day. Not only does the move break DATA out of its October funk — it also pushes shares to new all-time highs.
But TWLO wins the day after smashing earnings, revenue, and guidance estimates. The stock blasted higher by more than 35% yesterday, easily taking out its September highs.
Remember, software stocks were some of the hardest-hit names of the October correction. It’s a bullish sign that these flagship names are defying their downturns and beating earnings.
Marijuana was another major post-election winner.
Pot stocks soared Wednesday afternoon following the firing of Attorney General Jeff Sessions.
Sessions has been a thorn in the legal weed movement’s side for some time. Last year, he even said he would work to revoke the policy that allows states to make their own rules on marijuana sales without the federal government stepping in.
With Sessions out of the way and more states jumping on the legal weed bandwagon, sleepy marijuana stocks exploded higher on the news.
Tilray Inc. (NASDAQ:TLRY) busted out of its funk, blasting higher by more than 30%. Aurora Cannabis (NYSE:ACB) and Canopy Growth Corp. (NYSE:CGC) both gained a little less than 10% on the day.
The weed industry just closed out October with its worst week in nine months. Even though pot stocks were an unexpected refuge during the initial bout of market weakness we experienced in early October, these stocks couldn’t hang onto their gains.
Now we’ll see if these strong moves can power shares back toward their highs.
Finally, is a split congress good for stocks?
The midterm elections are over and everything worked out as expected this time around. The Dems took the House (as the pundits said they would), while Republicans picked up some Senate seats to cement their majority. Investors’ anxiety over the election is clearly fading as the major averages leap higher.
Can we expect smooth sailing from stocks since it’s now more difficult to get anything done in Washington?
As it turns out, bickering politicians can boost the market.
“Gridlock is good is an oft-heard mantra when it comes to stocks,” MarketWatch reports. “It comes from the notion that the likely inability of lawmakers and the president to accomplish much means politicians won’t be able to do much harm nor to undo market-lifting measures already in place.”
As Bank of America Merrill Lynch data show, stocks return an average of 12% in years when a Republican president was in office and Congress was split.
Unless our nation’s politicians start holding hands and singing Kumbaya, stocks have a real shot at some uninterrupted gains…
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