(Bloomberg) -- European equities advanced the most in almost five months, with investors looking ahead to the outcome of the U.S. presidential election.
The Stoxx Europe 600 Index added 2.3% by the close in London, the biggest gain for the benchmark since June 16. Cyclical sectors, such as banks and automakers, led the advance. France’s BNP Paribas (OTC: BNPQY ) SA surged after recording a bigger-than-expected boost from trading. The S&P 500 jumped for a second consecutive day.
Stocks are rebounding after worries about fresh lockdowns across Europe sparked a selloff that dragged the Stoxx 600 to a five-month low last week. Investors are bracing for the results of Tuesday’s electoral contest between U.S. President Donald Trump and Democrat Joe Biden, which has been a key source of market uncertainty besides Covid-19 developments.
“Stand ready to react to the U.S. election outcome,” Mark Haefele, chief investment officer at UBS Global Wealth Management, said in a note, predicting a fiscal stimulus agreement shortly afterward, regardless of the outcome. “Along with Covid-19, U.S. policy uncertainty has been a major source of volatility” and the election outcome “should provide greater clarity,” he added.
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 Trump and take Congressional majorities.
The Stoxx 600 fell more than 8% since an Oct. 12 peak to a low of 341.76 last week, before rebounding. The benchmark is poised for its worst annual drop since the 2008 financial crisis.
Pictet Asset Management cut European stocks to neutral from overweight, citing uncertain near-term prospects for the region as the 750 billion euros ($878 billion) of pandemic recovery funds aren’t expected to kick in until the middle of next year, according to Chief Strategist Luca Paolini.
“The return of lockdowns in Europe has affected investors’ mood as they tend to fear a repeat of the first wave,” said Oddo BHF strategist Sylvain Goyon. “But the latest correction of the market seems overdone as our quantitative analysis shows the reality is much less grim.”
©2020 Bloomberg L.P.
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