Stocks put together biggest 2-day rally since September

U.S. stocks capped the biggest two-day rally since September, led by a surge in bank shares as Treasury yields spiked on speculation that Congress will deliver a spending bill once the election is decided. The dollar weakened and crude oil increased the most in almost a month.

The Dow Jones industrial average closed 554 points higher, or up 2.1%, at 27,480.03, the highest close in more than a week and the biggest jump in 16 weeks.

The S&P 500 climbed 1.8%, to 3,369, and the Nasdaq composite advanced 1.9%, to 11,160. It was the second-best Election Day performance for the S&P 500 on record.

The S&P 500 had a two-day increase of 3.2%. Financial firms rallied 2.2%, also the most since September.

Democratic nominee Joe Biden is leading President Donald Trump in the final polls, with some investors speculating his victory would bring a surge in federal spending. Meanwhile, Alibaba Group Holding Ltd.’s U.S.-traded shares tumbled 8.1% after China halted the initial public offering of Ant Group Co., in which Alibaba owns about a one-third stake.

Treasurys fell and a gauge of the dollar dropped the most in more than three weeks as a risk-on mood prevailed. Oil extended gains after jumping on Monday on increasing signs OPEC+ will delay a planned easing of output cuts.

“It’s a reflection of the market’s belief there is not going to be a whole lot of uncertainty after election day,” said Matt Stucky, portfolio manager for equities at Northwestern Mutual Wealth Management Co. “The worst outcome for election day is a really uncertain winner scenario where it’s going to take weeks and a lot of legal back and forth before the decision is ultimately made.”

While trades reflecting a Democratic sweep held firm, betting markets aren’t convinced. One gauge slipped to just over 50% odds of the so-called Blue Wave, that Democrats oust President Trump and take Congressional majorities. Traders hedged prospects of post-vote volatility, driving a measure of expected swings in China’s yuan to its highest level in more than nine years.

“The ghost of 2016, from both polling and market expectations, looms large,” Michael Purves, chief executive officer of Tallbacken Capital Advisors, wrote in a note.

Elsewhere, the benchmark credit derivatives index measuring the perceived risk of U.S. high-yield companies gained by the most in almost two months, implying lower probability of default.

Markets are reflecting more optimism following weeks of speculation that a contested election outcome may produce no clear winner for some time and roil markets. Polls continue to indicate that Biden is ahead, though the race looks tight in some battleground states, some of which are seeing virus cases soar.

“The market’s upward bias, and underlying leadership of energy, industrials, and materials sectors, imply a Blue wave that incorporates the potential for the passage of stimulus and infrastructure spending bills,” said Sam Stovall, chief investment strategist at CFRA Research.

In Europe, mining shares climbed, helped by the slumping dollar. Banks rallied after BNP Paribas SA joined its European peers in posting lower-than-expected bad-loan provisions from the pandemic.