U.S. stocks rallied Wednesday despite uncertainties surrounding the outcome of the 2020 presidential election. The gains place the Dow on track for its best post-election day in 120 years.
While this might strike some as surprising considering the contentious counting of votes currently underway in crucial battleground states, some Wall Street analysts say the important part is already decided: It looks like Republicans held onto the Senate, and Democrats maintained control of the House of Representatives.
Whoever ends up sitting in the Oval Office, in other words, the federal government is divided along the same partisan lines that it was prior to the election.
"Divided government is the best scenario for stocks," said Michael Lee, analyst and founder of Michael Lee Strategy. "Markets like certainty. When you have a Republican Senate and a Democrat House, it doesn't matter who's in the White House."
In the short-term, however, uncertainty is exactly what the markets are getting, with President Donald Trump prematurely claiming victory and Democrat Joe Biden maintaining that he still has a path to victory.
"It's kind of interesting today with the uncertainty that the market's up as much as it is," said Doug Flynn, co-founder and financial planner at Flynn Zito Capital Management. "That's something I probably would not have expected. Normally the markets like more certainty."
Despite today's gains, Flynn anticipates some short-term volatility as legal battles over the vote counts loom.
"Normally we would expect a bit of volatility while they work through this process, which unfortunately we've been through before 20 years ago," he said. "Until you have some more clarity on what the outcome is, it's hard to make big position changes."
In the meantime, the consequences could be felt on a more sector-by-sector basis, he added. The question of whether future energy investments will shift to renewables rather than fossil fuels, for instance, hinges on whether Biden or Trump wins.
Longer-term, though, Flynn agrees that a hamstrung legislature is good for Wall Street's prospects in the coming years.
"I'm a huge fan of divided government," he said. "The crux of that is always when one party rules, it tends to get too far afoot one way or the other."
There is one government intervention, however, that many analysts agree is essential to continuing the broader economic recovery: the much-anticipated fourth stimulus bill, which both analysts agree is coming regardless of who wins the presidency.
"I think there's widespread acceptance that people at the bottom end of the income spectrum need some sort of assistance until the economy is recovered, so things like additional unemployment, additional stimulus checks, additional PPE," Lee said. "Those have widespread bipartisan support."
Outside of those basic tenets is where the "horse trading starts," he added. The nominal amount of the package and whether it supports things like state budgets are still up for grabs.
With the exception of the stimulus bill, Lee said, political gridlock is preferred on Wall Street.
"Manufacturing is booming. Retail sales are hitting all-time highs," he said. "When you have an improving economy and the tax code's not going to change, it's good for stocks."
Updated on November 5, 2020, at 3:56 p.m. ET to reflect that Republicans look as though they will maintain control of the Senate, but it hasn't been decided as of this edit.