ASX set to open higher as Wall Street jumps again

Election Day brought another rise for Wall Street, with stocks climbing on Tuesday for a third straight day.

The S&P 500 closed 0.6 per cent higher in mid-afternoon trade while the Dow Jones added 1 per cent and the Nasdaq gained 0.5 per cent. The Australian sharemarket is set to rise with futures at 7.59am AEDT pointing to a jump of 34 points, or 0.5 per cent, at the open. On Tuesday, the ASX rose by 0.4 per cent.

Bond yields fell. The yield on the 10-year Treasury slipped to 4.15 per cent from 4.22 per cent late on Monday.

The elections taking place in the US could leave the government split between Democrats and Republicans, which could be positive for markets. A divided government would likely bring gridlock rather than big, sweeping policy changes that could upset tax and spending plans. Historically, when a Democratic White House has shared power with a split or Republican Congress, stocks have seen stronger gains than usual.

Analysts say a strong performance by Democrats in the elections could lead to increased spending to help the economy that might fuel inflation, which is currently the highest in four decades. Wall Street will get more data on inflation later in the week with the government’s October report on consumer prices.

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Inflation and the Federal Reserve’s aggressive interest rate increases remain the big concerns for Wall Street. The central bank is trying to slow economic growth to cool inflation, but the strategy risks going too far and bringing on a recession.

“It will continue to be front and centre until we are out of the woods from this high inflationary environment,” said Bill Merz, head of capital market research at US Bank Wealth Management. “The Fed doesn’t even know how far they need to go, certainly nobody else does.”

Even though the Fed has said that it may soon pare back the size of its increases, it is still warning markets that it may ultimately hike rates higher than expected because of just how stubbornly high inflation has been. The Fed has already hiked its key overnight rate to a range of 3.75 per cent to 4 per cent, up from virtually zero in March, and more investors are expecting it to top 5 per cent next year.