Dow futures briefly swooned 750 points and bonds rallied as the outcome of the presidential election remained much tighter than expected.
Investors moved into bonds and stocks cratered as traders questioned whether Democrat Hillary Clinton could win the race, as expected. The Mexican peso fell 10 percent against the U.S. dollar.
“I would say the market is a bit more cautious as it doesn’t seem to be such a quick and decisive victory for Hillary as it seemed,” said Ian Lyngen, head of U.S. rate strategy at BMO. “But it’s not over yet.”
Traders watched for an outcome from Florida, a state that is still considered too close to call by NBC. Florida’s battle has been tense and was separated by only a single percentage point with 91 percent of the vote in, according to NBC.
“Trump needs to win Florida, but he also needs to win Pennsylvania, North Carolina and New Hampshire. Even if he wins Florida he still has a big hurdle in front of him,” said Dan Clifton, head of policy research at Strategas. “Florida’s close, so the question how does he do in … those other states. It’s early.”
Traders were hoping to get an early read from Florida but the tightness there raises questions about other states.
Races in the key states of Michigan and Pennsylvania were also too close to call.
“Virginia being close was kind of sentiment shift for futures. But it’s really Florida everyone is focused on right now,” said Brian Kelly of Brian Kelly Capital. “The knee jerk reaction is lower because of his protectionist policies and what his foreign policies mean for countries doing business in the rest of world.”
NBC News projected Republicans retain control of the House of Representatives. Wall Street has favored a win by Clinton but Republican control of congress. It was still too early to tell whether Republicans would win a majority in the Senate.
U.S. futures have been volatile, with Dow futures up as much as 100 points at one point, and later about 700 points lower.
In Asia, the Nikkei was down more than 4 percent, erasing a more than 1 percent gain on the day. The S&P 500 ended Tuesday’s session higher, up 8 at 2,139, as markets speculated that Clinton was in the lead.
The Mexican peso, which has been a proxy for Trump, was down about 8 percent against the dollar. Trump has said he would build a wall along Mexico’s northern border and break trade deals with the country. The U.S. dollar also gave up early gains against the yen and Swiss franc.
While voting continues in the Western U.S., the markets reacted as if Trump was heading to victory after trading higher for two days on optimism that Clinton could win.
“I think this could be the second strike of populism if Trump wins and I think that it’s probably a bigger surprise for international markets than it for the U.S.,” said Jack Ablin, CIO at BMO Private Bank. “Right now it’s just emotional. Everything from the last two days would get undone, and then we’d have to take it down. We could see a 600 point (Dow) reversal.”
Wall Street has favored a Clinton win because of some of Trump’s policies, such as his positions on trade.
“Emerging markets will just get annihilated. Oil gets hammered, and we’ll see. … It’s still early,” said Ablin.
Gold futures also traded higher in a safety play, rising 3 percent to $1,313.60 per ounce.