US Stocks Soar Ahead of Presidential Election

At this point, I do feel that we should put aside all other matters and focus exclusively on the elections, but I realised we have to be reminded that life goes on after the elections.

USA government bond prices rose. A gain in the benchmark for American equity in the three months prior to the vote has seen the incumbent party win 86 percent of the time since 1928. Monday, after the second letter had been issued and digested by pundits, voters, and investors as a big plus for Clinton, the market made up nearly all that loss, rising 2.22%. In Britain, the rural voter showed up to vote, while the city dwellers opting for the status quo did not.

Corporate results did little to buoy the market Thursday, with Facebook Inc. suffering the steepest slide since February after executives indicated the company will see slower revenue growth and higher costs. Trump is not the usual candidate.

Overseas markets were up significantly and the Standard & Poor’s 500-stock index broke its longest slide in almost 36 years on Monday as investors bet on a Hillary Clinton victory over Republican Donald Trump going into Tuesday’s election.

Notably, the index is down 1.1% in the initial two days of the election week this year. Markets are clearly anxious about a Trump win, or at investors are de-risking to protect against major shocks and volatility around the vote.

Gold sank the most in a month, joining a slide in other haven assets after the Federal Bureau of Investigation statement was seen boosting Clinton in the final stretch of the election campaign.

An asymmetric risk is where the outcomes are skewed. (NYSE:CIA). The stock is now trading 3.2% higher at $7.75, and call options are trading at 1,349 times their normal intraday clip, with over 35,000 calls on the tape – an annual peak – compared to just 326 puts. The worst-case scenario is probably a GOP sweep.

“With Trump, there always follows an uneasiness over whether policies will be managed properly in the United States”.

Pretty good odds, but not super good. No matter who wins the election. “Even if the market sells off, if you have any reasonable time horizon, that should be a buying opportunity. There isn’t certainty she’ll win, but she is gaining some momentum and at least we got one worry out of the way”. Learning a bit about how to hedge your portfolio or asset allocation techniques between lower correlated assets could help smooth out the ride. US companies today trade at 77 percent higher valuations on a price-earnings basis than they did when the 7 1/2-year bull market began.

As we further explained at the start of the year, “this relationship occurs because the stock market reflects the economic outlook in the weeks leading up to the election”.

The earnings season is drawing to a close, with about 85 per cent of S&P 500 companies having reported.

This followed a drop in Asian shares overnight and an eighth straight day of losses on Wall Street’s S&P 500 – its longest run of losses since the financial crisis in 2008.

The Investopedia Anxiety Index (IAI) also suggests that the VIX is offering overly gloomy signals. If the VIX was tracking its typical spread to 1m trailing realized volatility then the VIX would be trading at 11, or about one-half its recent level (6.8 one-month realized vol + 4.2 vol point spread = 11 VIX).