By Susan Mathew and Sinéad Carew
(Reuters) - High-flying technology stocks boosted the S&P 500 and healthcare led gainers on Wednesday as investors bet a divided U.S. government would stunt chances for big reforms for these sectors or corporate tax hikes.
But economically sensitive cyclical sectors - materials, industrials and banks - declined as they were expected to benefit most from a large stimulus package that is now deemed unlikely after Tuesday's U.S. election.
If Republicans retain U.S. Senate control and Democrats keep their House of Representatives majority, as investors expect, any fiscal stimulus package is likely to be smaller than under a Democrat-controlled government.
Wall Street's main indexes surged with the tech-heavy Nasdaq outperforming. [.N]
Following are the major movers as investors digested the election results and awaited news on Democratic challenger Joe Biden's chances of beating President Donald Trump.
Technology mega-caps were in demand as they are less dependent on stimulus for growth but would have been hurt by corporate tax rate increases and stronger regulations expected from Democrats. Also, the Federal Reserve may keep rates lower for longer without a massive stimulus boost.
Microsoft Corp, Apple Inc , Amazon.com Inc, Facebook Inc and Alphabet Inc were some of the market's biggest boosters with gains between 4% and 8%.
"Less regulatory risk and less tax risk is more constructive for those growth names," said Lauren Goodwin, economist and multi-asset portfolio strategist at New York Life Investments.
U.S.-LISTED CHINESE STOCKS
The iShares MSCI China ETF closed up 4.4% after hitting a record high as investors bet a Biden presidency would mean fewer U.S.-China trade tensions.
Shares of Baidu Inc rose 4.6% while Alibaba Group Holding Ltd rose 3.5% and JD.Com Inc added 8%.
The S&P healthcare sector led percentage gains to close up 4.5%.
"Even in the event of a Biden presidency, reform to the healthcare sector would be much more difficult without strong Congressional support," said New York Life's Goodwin.
Health Insurer Unitedhealth Group rose 10%, providing the sector's biggest index point boost while Cigna Corp and Anthem Inc also showed double-digit percentage gains. Merck & Co rose 4.8% and Regeneron Pharmaceuticals Inc climbed 5.4%.
Trump vs Biden stock baskets
The S&P 500 Bank sector fell almost 4% as bond yields dropped and investors worried that weaker fiscal spending could weigh on credit.
Among the bigger banks, Bank of America fell 4% and JP Morgan and Citigroup Inc dropped more than 3%. Comerica Inc, M&T Bank Corp and Zion Bancorporation NA fell more than 10%.
The Invesco Solar ETF closed down 2%, though above its session low. The alternative energy exchange traded fund had gained more than 40% from its September lows because clean energy was a key element of Biden's agenda. The iShares Global Clean Energy ETF fell 1.3%.
"The fact that Republicans are likely to retain a Senate majority would make it virtually impossible for Biden (if he wins) to enact his major climate reforms," said Raymond James analyst Pavel Molchanov.
Solar energy firm First Solar Inc's shares fell 8.6% while JinkoSolar lost 12% of its value.
Shares of industrial and building materials companies such as Caterpillar, Vulcan Materials and Jacobs Engineering slid between 6% and 9% as hopes faded for Democrats' infrastructure spending plans.
Major cannabis producers slumped even as New Jersey voted to legalize marijuana. The sector had soared after the vice presidential debate, when Kamala Harris, Biden's running mate, vowed to decriminalize marijuana at the federal level.
The ETFMG Alternative Harvest ETF slipped 3%.
Shares of Tilray Inc fell 9% while U.S.-based listings of Canada's Canopy Growth Corp fell 7%.
Defense company Northrop Grumman rose 3.5% while Lockheed Martin added 2.4% on expectations for Republicans to retain control of the Senate.
"This removes the threat of a Blue Wave, and 'progressive' Democrats attempting to take an axe to the Department of Defense budget to fund other spending priorities," said Vertical Research Partners analyst Robert Stallard.
(Additional reporting by Trisha Roy, Arunima Kumar and Ankit Ajmera in Bengaluru; Editing by Patrick Graham, Bernard Orr, Shounak Dasgupta and Richard Chang)