Wall Street rallies ahead of a potentially turbulent week

NEW YORK (AP) — U.S. stocks are climbing Monday, kicking off a potentially turbulent stretch for markets, as Wall Street recovers some of its sharp sell-off from last week.

The S&P 500 was 1% higher in early trading after more companies reported stronger profits for the summer than Wall Street feared. The Dow Jones Industrial Average was up 273 points, or 1%, at 26,774, as of 9:42 a.m. Eastern time, and the Nasdaq composite was 1.2% higher. They followed up on gains across Europe and Asia after reports there on manufacturing were stronger than expected.

Caution, though, was continuing to hang over markets as the pandemic raises worries that customers will stay away from businesses and pushes more European governments to bring back restrictions. Treasury yields were falling.

It’s an incredibly busy week for markets, with the Federal Reserve announcing its latest decision on interest rates Thursday, the U.S. Labor Department releasing its market-moving monthly jobs report on Friday and roughly 130 companies in the S&P 500 scheduled to report their results for the summer through the week.

Blaring above them all is Tuesday’s Election Day. Markets have veered sharply in recent weeks as investors deal with uncertainty about who will control Washington, and what that means for the chances of the U.S. government delivering more aid for the economy.

Many professional investors say they plan to hold steady through whatever volatility the election creates because history shows politics don’t have a very strong correlation with market returns over the longer term. But they’re nevertheless girding for potentially big swings in the interim.

The feared scenario for investors is a contested election, where it could take weeks for a winner of the White House to emerge. Markets famously hate uncertainty, and many along Wall Street expect stocks to drop in such a scenario.

Which party gets control of the Senate may be just as important as the presidency. If Democrats can gain complete control of Washington, many investors expect them to deliver a big dose of support for the economy. That plus “more predictable trade policy” could offset the higher tax rates and tighter regulations that would likely come out of a Democratic-controlled Washington, which the BlackRock Investment Institute says could lead to a better environment for stocks and other risky investments.

Democrats and Republicans have been haggling about a stimulus renewal for months, since the last round of supplemental benefits for laid-off workers and other stimulus expired. But a deep partisan divide has so far stymied them.

The U.S. economy has been showing a mixed performance recently. Investors and economists alike say the economy needs another shot of stimulus, particularly when coronavirus counts are accelerating at troubling rates across Europe and much of the United States. So far, the toughest restrictions on daily life and businesses have not returned. But even if they don’t, the worry is that fear about the virus will keep customers away from businesses by itself.

Corporate profits, meanwhile, are weaker than year ago levels but continue to be better than Wall Street had feared.

Estee Lauder jumped 5.2% for one of the largest gains in the S&P 500 following its better-than-expected profit report. Sales weakened by 9% from a year earlier as some stores were closed, but it said it benefited from strong sales growth in China.

The world’s second-largest economy has been a relative bright spot in the global economy recently. A major indicator for China’s manufacturing sector reported a rise on Monday, which showed that domestic demand is holding up.

That helped drive Asian stocks higher, along with encouraging data for Japan and India. Japan’s Nikkei 225 rose 1.4%, South Korea’s Kospi climbed 1.5%, Hong Kong’s Hang Seng added 1.5% and stocks in Shanghai inched up by less than 0.1%.

In Europe, France’s CAC 40 rose 2.2%, and Germany’s DAX returned 2% after a survey showed industrial output was at a strong level in October in the eurozone, just as new limits are being reimposed on public life. The FTSE 100 in London climbed 1.3%.

But in a show of continued caution, the yield on the 10-year Treasury fell to 0.84% from 0.88% late Friday.

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AP Business Writer Yuri Kageyama contributed.