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What's at Stake for Wall Street This Election?

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Monday, November 7, 2016

To say the outcome of the 2016 General Election in the U.S. is highly anticipated is to woefully understate matters. Not only the race between Hillary Clinton and Donald Trump for the presidency, but down-ticket to decide which party — Democrat or Republican — will control the Senate (the House is solidly Republican) will have much to do with how the markets will anticipate future U.S. policy, economic and otherwise.

For months, a Clinton victory had been baked in the cake. A near double-digit lead for most of the summer kept the CBOE Volatility Index (VIX) at historically low levels, but as the months moved on the race has tightened, sending the VIX higher as the prospects of Trump’s chances increased. Not only because Clinton’s economic policies appear to be generally in-line with those of President Obama, who will have served two full terms, but that Trump’s proposed policies often veer from traditional Republican (GOP) interests.

The Trans-Pacific Partnership (TPP) comes to mind, which solidifies trade agreements between the U.S., China and other countries of the Far East. Even though Clinton has also voiced disapproval of the TPP, this has been viewed by political analysts as a campaign tactic to keep supporters of anti-TPP Democratic Socialist — Clinton’s primary competitor — Senator Bernie Sanders from abandoning the Democratic nominee. Trump, on the other hand, has vowed to “get tough” with China from the earliest days of his campaign; most of these same analysts expect Trump to enter into a trade war with China, which would spike volatility and generate lots of near-term uncertainty.

Key to tomorrow’s election is whether or not the Senate might swing to Democratic control, giving the gavel of the Senate Budget Committee to Sanders and additional empowerment to Sen. Elizabeth Warren, whose tough rhetoric about Wall Street “excesses” had been a hallmark of a more visible left-wing of the Federal level this campaign season. The market traditionally prefers gridlock anyhow; as long as progress moves slow enough for the Street to digest — or not move at all, even better — the market can minimize their projections of economic uncertainty.

After nine straight down sessions of the S&P 500 — the most in nearly 36 years — we see futures bouncing back “bigly” this morning: S&P futures are +30, the Dow +260 and the Nasdaq +76. With a mini-saga over the past week and a half involving CIA Director James Comey and Clinton’s emails when she serves as Secretary of State now having been resolved (although we still have 24 hours for some additional “news” to grab headlines), the odds of a Clinton victory appear to be again growing. That said, this race remains tight, and most analysts do not expect a clear victor to emerge until after the polls close tomorrow, at the earliest.

Q3 earnings season continues, for those still interested in such things. Berkshire Hathaway (BRK.B - Free Report) beat Q3 earnings estimates on improved year over year sales. Sysco (SYY - Free Report) beat earnings estimates on in-line revenues, Scripps Networks topped bottom-line expectations, and Ariad saw a Q3 loss narrower than anticipated while revenues outperformed estimates.

Mark Vickery
Senior Editor

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