市场速读 | 不确定的选举前景下,支撑市场的三大因素

My friend and colleague Paul Eitelman did a great job on election night and yesterday morning keeping us informed on the status of the election results, translating what they seemed to be saying and then analyzing the very early indications of how financial markets are processing all of that. In today’s blog, I will update the current status of the election results, extend the conversation with regards to the market reaction at this point and revisit what we see as the most important factors investors should be considering going forward.

First things first

The counting is not finished, but the comforting thing is that every governor and secretary of state—in the states that are still uncertain—have said across the board that they will continue to count until all of the valid votes cast are counted.  Importantly, this message has been consistent regardless of whether or not the official speaking was a Republican or a Democrat.It is a frustrating thing for all of us, and I am guessing more so for those sleepless officials, that this vote-counting process is taking a lot of time.

That said, the picture seemed to get a little clearer from the markets’ perspective and it appears that Vice President Biden is on the brink of at least winning the minimum number of Electoral College votes, 270, in the initial pre-certification vote count, if the current trends hold. This is a huge if. Also, the consensus remains that the Republicans will retain the Senate. It seems likely that those initial counts will largely be over by Friday, Nov. 6. Formal certification will take a couple of weeks, as it always does, and there may be court challenges, but the market is likely to base its view of the results on that initial count until there is a reason to change it, and that is not very common at all in our history. Stay tuned and we will let you know if anything changes over time.

The trading desk perspective

The good news is that the wait until this point has been orderly and the markets have not expressed any real angst as they wait with the rest of us.To illustrate this, I spoke with our trading desk which, out of an abundance of caution, was closely monitoring the overnight futures market. This market is typically a good proxy for measuring how concerned the broader equity market is with what is happening in the vote. By observing the volatility of the price behavior of futures and the volume of instruments being traded, we can gauge how concerned market participants are about what they are seeing.

The industry early consensus on this recent election night was that the market seemed to have priced in a blue wave of Democratic party success and did not get one. But, from the point of view of our trading desk, both price behavior and volumes in the futures market indicate that it viewed it as an average election night, with both volumes and price volatility being about one third of what we saw in 2016.

That sense of calm in the markets extended into the next day, on Wednesday, Nov. 4, pretty much across the board.Looking across markets, stocks had a good day.It should not be enormously surprising that the biggest positive moves were in the U.S., since it was our election that was dominating the news, with the S&P 500 being up 2.21% on the trading day.We believe there were three factors contributing to that strength:

  1. With Republicans likely to retain control of the Senate, the expected corporate tax hikes of a unified Democratic government are very, very unlikely to materialize. This alone removes an estimated potential 6% hit to corporate earnings.
  2. Senate majority leader Mitch McConnell indicated early in the day that he saw a stimulus deal as “job one” for the Senate when it goes back in session next week, so maybe the market will get both no new taxes and a stimulus package, albeit likely a smaller stimulus than what would have occurred in a unified Democratic government.
  3. Interest rates, as Paul Eitelman indicated, that had been rising on the expectation of a potentially very large stimulus package, fell 16.5 basis points, as measured by the 10-year U.S. treasury note.Lower interest rates have been a strong factor in supporting stock prices this year.

Tech, growth and value

Within the U.S. market, technology had a particularly good day, with the Nasdaq Index up 3.85%.This was probably a result of the fact that the Biden tax plan had specific elements that seemed to be specifically targeting technology companies. With no control of the Senate, that plan will likely no longer be implemented. This was yet another good day for performance of tech companies in general and mega cap growth tech stocks in particular, both of which have dominated market performance all year.

We do not think this is a harbinger of what is to come over the next yearWe think that the closer we get to a vaccine, the more the reopening trade will drive the market, as it usually does, in the direction of a cyclical recovery. In that environment, value stocks tend to outperform growth stocks, especially when growth stocks are notably expensive.As we sit here today, growth stocks by many measures are more expensive than they have ever been. More on this later, but we have already explored this topic in recent blogs.

The bottom line

All in all, order has so far been the rule in this immediate post-election environment.That is the way it is supposed to be during elections and it is gratifying to see that, even in this age of great political polarization, the system can function as it was designed to function.Let’s hope that sense of order and calm continues.The market certainly has expressed its happiness with the story so far and appears to initially be happy with what it sees coming down the road.