Investors cheer French election results as U.S. and global stocks rally

Vive le rally.

U.S. stocks joined a worldwide surge higher Monday after the first round of France’s presidential election raised expectations that the European Union will hold together. A candidate seen as pro-business won the most votes Sunday, and many investors expect him to win a runoff against the remaining anti-EU candidate, which is set for May 7.

Prices for gold, Treasurys and other investments that signal fear in the market all sank, while a popular gauge for measuring investor fear eased by the biggest margin since the summer of 2011.

“It’s good news, and now investors have a reason to focus on the fundamentals in Europe, which are strong,” said Luca Paolini, chief strategist at Pictet Asset Management, a British-based firm that manages $165 billion in client assets.

The Standard & Poor’s 500 index jumped 25.46 points, or 1.1%, to 2,374.15. The Dow Jones industrial average rose 216.13, or 1.1%, to 20,763.89, and the Nasdaq composite gained 73.30, or 1.2%, to 5,983.82.

Coming into Sunday’s election in France, several candidates railed against the European Union, one of the world’s dominant trading partners. A victory for one of those candidates would have followed the path set by last year’s “Brexit” vote by Britain to exit the European Union and the U.S. election of Donald Trump as a kick in the face to the globalist, free-trade worldview.

Emmanuel Macron, a candidate investors see as pro-business, ended up winning the most votes. He will face Marine Le Pen in a runoff election in two weeks. Le Pen is one of the candidates who campaigned against the European Union, but many investors expect Macron ultimately to be victorious.

“It’s not only France” where the forces of populism seem to be waning, said Paolini. He pointed to the Dutch elections last month, where a candidate who ran on the pledge to pull the Netherlands from the European Union lost.

“This surge is fading,” Paolini said. “Maybe it’s too early to celebrate, but that’s what the market is pricing in.”

Risks remain: Not only is there the runoff election for France in two weeks, but there is also a parliamentary election in June. And other elections may loom even larger for the future of the European Union, such as next year’s Italian vote, Paolini said.

On Monday, though, relief reigned. France’s CAC 40 index jumped 4.1% and at one point touched its highest level since 2008. Germany’s DAX gained 3.4%, and the FTSE 100 in London rose 2.1%. Asian markets also rose.

Demand for investments that investors flock to when they’re fearful also fell. The price of gold fell $11.60 to settle at $1,277.50 per ounce.

Prices for Treasury bonds dropped, which sent yields higher. The yield on the 10-year Treasury climbed to 2.27% from 2.25% late Friday.

Any rise in bond yields recently has fed into immediate gains for bank stocks, because higher rates mean banks can charge more for loans, and Monday fit the pattern again.

Financial stocks in the S&P 500 jumped 2.2%, by far the biggest gain among the 11 sectors that make up the index.

Strong earnings reports also helped to lift stocks, as companies continue to report better results than expected. Analysts forecast this to be the best quarter of earnings growth in years.

In the commodities market, benchmark U.S. crude oil fell 39 cents to settle at $49.23 per barrel. Brent crude, which is used to price international oils, fell 36 cents to $51.60 per barrel.

The dollar climbed to 109.79 Japanese yen from 109.21, and the British pound slipped to $1.2789 from $1.2795.

UPDATES:

1:55 p.m. This article was updated after the markets closed.

This article was originally published at 7:40 a.m.