For better or worse, market action Tuesday and Wednesday is almost wholly dependent upon who wins the U.S. Presidential Sweepstakes: Donald Trump or Hillary Clinton.
WASHINGTON, November 8, 2016 – U.S. stocks opened modestly down Tuesday morning and major averages remained in the red until roughly 11 a.m. EST before traders began painting the tape green again. At approximately 11:30, the Dow Jones Industrials are up about 70 points, the broader-based S&P 500 is up 7.15 and the tech-heavy NASDAQ is up 17.8, a roughly 33 percent gain for each at least as of this writing.
Markets tend to be like insurance companies. When an insurance underwriter is checking the information on a life insurance policy application, he’ll heavily scrutinize any medical information, looking for clues that clearly indicate whether the applicant is of normal health; or, if that applicant has had health problems in the past, clues that indicate things have stabilized to the good for a considerable period of time. Anything that indicates uncertainty or ongoing testing—anything that’s not conclusive or normal—can cause the policy application to be rejected.
So it is with markets. Preferring what Eliot called certain certainties, traders, investors, fund and institutions prefer to go with knowns rather than unknowns both in the business world and in politics. And right now, for better or worse, markets consider that, based on the presidential record of Bill Clinton and on the current situation with outgoing Barack Obama, Hillary Clinton is the “known” in this race. As the “known,” she makes these groups feel comfortable which is part of the reason why they’ve thrown money at her campaign.
On the flip side, even though many on Wall Street are quite familiar with Donald J. Trump as a fellow NYC businessman, he and his brash personality are the “unknown” in this electoral cycle. Hence, at least as a candidate, Wall Street dislike and distrusts him, hasn’t significantly contributed to his campaign, and lives in fear that, despite the media’s unprecedented negative onslaught on his candidacy, The Donald might actually pull this one out.
An article in today’s New York Post by the respected Charlie Gasparino sums up this tricky investing environment quite well. Here are some excerpts, which, happily enough, track with some of the Maven’s recent observations:
“As Donald Trump’s poll numbers have improved, the stock market has shown its disapproval: Money has been flowing out of stocks, volatility is picking up and fear has been spreading among traders that a Trump presidency would be bad for the economy and awful for the markets.
“And, as usual, Wall Street has it mostly wrong.
Not necessarily the part that Trump might win on Tuesday, of course. That’s a real possibility, even if his path to victory is still narrow….
“No, where Wall Street traders and investors are losing it is in the notion that stocks need to go down in value to compensate for a neophyte politician with a volatile temper like Trump being in the Oval Office, while his staid and experienced (and possibly criminal) Democratic opponent Hillary Clinton is sent home presumably to give more paid speeches to Goldman Sachs and run her controversial charity.
“Indeed, for months now, the market has been fluctuating along with Trump’s poll numbers…”
This theory might have been borne out in this morning’s trading action, as several early precinct reports from New Hampshire showed Trump running ahead. Sure enough, stocks opened down. Now they’re on the way back up as the major cable media mavens are on TV shilling for Hillary like there’s no tomorrow and “proving” there’s no way Trump can get to the magic number of electoral votes that would assure his election as president.
Who knows where the trading day will end? The Maven sure doesn’t. Neither do major institutions, either, as ZeroHedge clearly indicated in a Tuesday morning “Tyler Darden” piece:
“In the United States, [investment banking firm] Morgan Stanley [trading symbol: MS] told staff to consider using stop-loss orders if the result causes trading volumes and volatility to spike. MS also told advisers in its wealth management unit to prepare for election-related conversations with clients and pointed them to relevant pieces of research. Most banks have already scheduled early Wednesday morning calls to institutional clients to guide them on what next steps will be in either outcome.
“Meanwhile, traders expect the S&P to swing by about 2% in either direction on Wednesday based on the price of S&P 500 index options…
“Some banks are projecting a more extreme drop in the event of a victory for Republican Donald Trump, with Citigroup Inc. estimating that a Trump victory could trigger a 3 percent to 5 percent sell-off for the S&P 500…
“But what is the signal that banks will be most focused on to determine if consensus will be wrong – again – and Brexit-like chaos is set for a repeat appearance?
“According to counterparties, Deutsche Bank – which likewise has a base case that Clinton will win – has advised its sales and trading team to immediately report to their trading desks should Trump wins Pennsylvania and Michigan. This means shortly after the polls in these two states close at 8pm, trading will be either promptly die down or will just be getting started.
“So should Trump be seen as leading and/or winning in those two key battleground states, expect all volatility hell to break loose.”
Bold material via ZeroHedge.
In short, traders will be battered all day with the usual gasbagging pundits, most of whom don’t know what they’re talking about but still blather on lest there be any dead time on cable news channels in between an expected avalanche of commercials. And if it’s not the blow-dries, it will be little film clips on the tube and on the net, like this short Twitter video clip of topless “Femen USA”
protestors professional agitators at Donald Trump’s New York polling place that we spotted via Gateway Pundit:
— Sharon Clott Kanter (@sharonclott) November 8, 2016
The effect of this final 24/7 frenzy will likely have the market in turmoil today, tomorrow and perhaps longer than that. We’ll keep our hedges on for now, but do little else. To see what we’re up to, visit our daily Trading Diary, which we’ve now moved to our other column, The Prudent Man.
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