The election of Trump has occasioned a stock rally. Defense stocks have gone up based on his promise to “rebuild” the military. And stocks have rallied across the board on the expectation of stimulus spending on infrastructure, repatriation of offshore corporate money and tax cuts. Concerns about inflation, higher interest rates and a pricey dollar have been laid aside for now. But we were recently reminded that some stocks may be at risk despite the Trump stock rally. CNBC quotes Jim Cramer regarding stocks surprisingly at risk under Trump.
While the market continued to roar higher on Tuesday, Jim Cramer couldn’t ignore the cracks starting to appear in the Trump rally, especially for defense stocks.
Donald Trump’s tweet that claimed the cost of Air Force One that Boeing is building to be more than $4 billion caught Cramer’s attention on Tuesday and what it could mean for risk in defense stocks. While the $4 billion figure was unconfirmed, the real issue for Cramer was suasion, or what President Theodore Roosevelt called “bully pulpit.”
Trump may have been upset when the CEO of Boeing discussed the risk to his company if Trump engages in a trade war with China or he may have been sending a message to the entire defense industry that they will be held accountable to costs. A follow-up phone call from the Boeing CEO resulted in all sorts of positive comments. Never-the-less there may be stocks at risk despite the Trump stock rally. Which stocks are these?
U.S. Defense Stocks
We have written in general terms about investing in defense stocks.
The ten largest US defense contractors account for 1 percent of the US domestic economy. Investing in defense stocks means buying stock in giants such as Lockheed Martin, Boeing with its Boeing Defense, Space and Security division, Northrop Grumman Corporation and, General Dynamics. It also can mean buying stock in Raytheon Company, the world’s largest producer of guided missiles or L-3 Communications Holdings, Inc. which provides the likes of NASA, intelligence agencies and the military with command, control, communications, intelligence, surveillance and reconnaissance (C3ISR). Well-known companies such as Honeywell and Hewlett Packard also do defense contract work although, obviously not exclusively.
In 2015 military spending in the U.S.A. was $601 billion. This was about 55% of all federal discretionary spending. Business Insider looked at a breakdown of how the U.S. military spends its billions.
In 2015, the US will have a declared military and defense budget of $601 billion, which is more than the next 7 highest spending countries combined. The vast majority of the $601 billion will be funneled towards the military’s base budget, which includes funding for the procurement of military equipment and the daily operations costs of US bases.
Out of $600 billion $63.5 billion went to research and development and $90.4 billion went to procurement. It is this $153.9 billion that goes to pay defense contractors for things like designing and building the next generation Air Force One. Here is a breakdown of the military budget by investments.
Aircraft related systems: $40 billion
Shipbuilding and maritime systems: $22 billion
Missiles, munitions and missile defense: $17.2 billion
C41 systems: 6.6 billion
Space systems: 5.2 billion
If Trump is able to go through with an upgrade of the US military expect these numbers to go up along with profits for defense contractors. But if Trump picks at the pricing defense contractor profits and stock prices may be at risk.
Investors profit when they get in early for a broad based stock market rally. The unexpected election of Trump as president first occasioned a selloff and then a rally as investors anticipate stimulus spending, tax cuts and repatriation of offshore corporate assets. But is the stock market rally sustainable and just how broad based is it? CNBC points out that just three stocks are responsible for more than 50% of the last month of run up in the market.
The Dow Jones Industrial average has gained about 1,200 points over the past month. And interestingly, nearly half of that advance has been produced by just three stocks.
Leading the field by a wide margin is Goldman Sachs: That stock’s 26.5 percent rally over the past month has added about 320 points to the Dow. In second place is UnitedHealth, which is up about 15.7 percent, and has consequently tacked about 150 points onto the 30-stock index. Finally, Caterpillar’s 17.3 percent run had added about 95 points, just ahead of JPMorgan’s 90-odd point contribution.
As it happens, these four stocks, including JPMorgan, are the best performers over the past month. But their contributions could be seen as oversized due to their high share prices.
Compared to the Dow, the S&P 500 is up a third as much as it is market-cap weighted. Either way the market is up but is the stock market rally sustainable? Stocks rise on expectation of profits and fall on expectation of loss or simply the end of new profits. For the rally to continue we may need to wait to see what happens after Trump and the new Republican controlled congress takes over in January. At least for investors the picture of what Trump wants to do is becoming clearer. On the other hand it is not clear if he will find willing helpers in congress. The same herd of cats that stymied Obama may be tough for “the Donald” to deal with.
Global Stock Market Dominance
The Wall Street Journal notes that with the recent rally U.S. stock market cap is $25.2 Trillion which is 40% of global stock value. Will this global dominance of U.S. stocks continue or will the rally peter out?
American equities are getting more valuable relative to the rest of the world as major indexes notched fresh records in the weeks after Donald Trump was elected president on Nov. 8. Investors and traders have largely interpreted the president-elect’s policy priorities as likely to benefit U.S. businesses, particularly his plans to cut corporate taxes and increase fiscal stimulus. Also, bets on higher economic growth and interest rates have strengthened the dollar.
The strength of the U.S. dollar adds to the increase in U.S. stock market cap compared to all other nations. So long as the Fed goes ahead and raises interest rates the dollar will go up. So long as too-high rates or mismanagement by the new Trump team does not mess things up there is a shot at a medium term expansion of the economy and persistent rally. The narrowness of the market gains is, however, a concern and the risk of an ever-expanding national debt as Trump pushes tax cuts could put a nail in the coffin of this or any rally.
The bottom fell out of the oil market in the middle of 2014 as supply greatly exceeded demand. The price of crude oil fell from more than $100 a barrel to less than $30 a barrel by the end of 2015. Although crude is back in the $45 range producers are hurting across the globe and investors have fled oil stocks. How can you make money on oil these days with a weak global economy and too much oil being pumped? Fortune reports that there may be an output cut by OPEC and the news drove oil prices up by 8%.
Oil prices jumped more than 8% on Wednesday to a five-week high as newswires reported that the Organization of the Petroleum Exporting Countries had agreed its first oil output cuts since 2008.
An OPEC source told Reuters on Wednesday that the cartel, which produces one-third of the world’s oil, had firmed up an agreement in line with a tentative deal reached in Algiers in September. That would involve cutting output from a current level of around 33.6 million barrels a day to somewhere between 32.5 million and 33 million.
Will the cuts by OPEC producers stick? Will non-OPEC producers like the USA, Russia and China simply pick up the slack? If OPEC is able to decrease production from 33.6 million barrels a day to 32.5 million barrels it could erase the daily oil excess within a year and drive prices up. However, the sum total of daily production by Russia, the USA, China, Canada, Brazil, Mexico, Colombia, the UK and Norway is 33.8 million barrels. US oil production went up 50% from 2009 to 2015 due to fracking technology. But fracking is a much more expensive way to produce oil and many operations closed when prices fell. US oil production has fallen by more than 12% in the last two years. If OPEC reduces production and prices rise it is likely that other producers, most notably US fracking operations will resume higher production. Importantly fracking technology keeps improving and has increased production per well as efficiencies drive costs down.
U.S. Shale Oil Industry
At the start of 2016 the U.S. Federal Reserve looked at productivity improvements and cost declines in U.S. oil shale production.
Oil prices have declined by roughly 70 percent since peaking in the middle of 2014. The U.S. oil rig count-a common measure of drilling activity-peaked in late 2014 and has since declined by about 60 percent. Yet U.S. production of crude oil continued rising until the middle of 2015 and has since fallen by only 6 percent from its peak. The dramatic advance of U.S. oil production seen in the last decade-driven primarily by new discoveries of shale oil and innovation in drilling and extraction technology-has not been as responsive to the deterioration of oil markets as some analysts predicted.
It turns out that extraction per well is more efficient with newer technologies allowing extraction of twice as much oil per day per well compared to just a decade ago. Drilling of new wells has dropped off by as much as 60% but current wells are still producing. The breakeven point for a high producing well is $30 a barrel and $50 a barrel for a moderate producing well. Thus a small increase in oil prices will drive up profits for fracking operators. When profits go up drilling for new wells will resume. Where to make money in oil these days with the promise of higher prices could well be with oil drilling companies and companies using the high tech fracking technology.
In anticipation of tax cuts, stimulus spending on infrastructure and repatriation of US corporate offshore assets the US stock market is booming. The outlook is not so bright in developing markets. Bloomberg asks if this is back to the 90’s for the stock market.
Donald Trump’s election as U.S. president is driving global markets to levels not seen in nearly two decades – but in completely different directions. And the “polarization'” of emerging and developed markets is all part of “Trump reflation,” argues Divya Devesh, a foreign-exchange strategist at Standard Chartered Plc in Singapore.
In the post-Trump era, emerging markets have been feeling the heat. Malaysia’s ringgit plunged on Tuesday to be less than 1 percent from the 4.48 per dollar it reached in September of last year, the weakest level since the Asian financial crisis in the late 1990s. Sentiment is little different in the country’s equities market, where investors sold 1.1 billion ringgit ($248 million) of shares through Friday in the biggest weekly exodus since June.
While oil producing countries are looking to devalue their currencies the pain is wide spread in nations that were huge suppliers of raw materials to China just a few years ago. Meanwhile the S&P 500, Dow Jones Industrial Average, NASDAQ Composite Index and Russell 2000 Index to record levels. Does this really compare to the 1990’s and if so will we see a dot com crash at the end? And will all of this end up helping or hurting the disaffected who voted Mr. Trump into power?
1990’s Economic Boom
When Bill Clinton was in the White House there was an economic boom. The Wharton School of Business published a review of the stock market boom and gains in productivity in the 1990’s.
During the second half of the 1990s, the United States experienced the continuation of one of the longest economic expansions. The distinguishing characteristics of this period can be summarized as follows.
- High growth rates of output, employment, investment and wages.
- High growth rates of labor productivity.
- A stock market boom.
- A financing boom for new and expanding firms.
- A sense of moving towards a “New Economy”.
The down side was that the market crashed in the end, personal debt went to sky high levels and the middle class was left out. The Economic Policy Institute discusses how the 1990’s boom was a bust for the middle class.
For the last few years, the American economy has been on a real bender. Consumer spending, fueled by mounting personal debt and a gravity-defying rise in the stock market, has set off an economic boom that has boosted job prospects and incomes across the board. Like any night out on the town, however, all good things must eventually come to an end. This time, the negative personal savings rate, the spiraling trade deficit, and the threat of a sudden drop in the stock market are the leading candidates to spoil the party.
The big question facing middle-class Americans is: when we wake up to smell the coffee, what will we have to show for the 1990s? The short answer is: not much, even if Congress passes an ill-advised tax cut sometime this year.
As most will remember congress did pass a tax cut and Bush II signed it. The end result was the market crash of 2008 and the worst recession in three quarters of a century.
If Trump policies lead us back to an economic boom how should investors capitalize on this opportunity and at the same time protect themselves against eventual catastrophic losses? More to come…
The president elect has announced that he intends to repeal the Affordable Care Act known as Obamacare on his first day in office. Of course it would take congress to repeal a law but the point is that Obamacare as we know it is going away. What will repealing Obamacare do to health care stocks? CNBC reports that health care stocks tumble even as the market hits a record.
While the major U.S. stock indexes hit all-time highs Tuesday, health care stocks traded lower on disappointing earnings and gave back some of a post-election relief rally that had lifted the sector.
“Medtronic certainly had a pretty tough quarter and [is] driving down medical devices” stocks, said Mike Bailey, director of research and chair of FBB Capital Partners, which has a “very small” position in the stock.
He attributed Tuesday’s decline in health stocks broadly to a pullback after recent gains, and some uncertainty on the effect of President-elect Donald Trump’s health care policies.
Because the industry believed that Trump would reduce oversight of drug prices, these stocks had done well after the election. But when Trump verified that he would work to repeal the Affordable Care Act the stocks have fallen. If this threat comes to fruition what will repealing Obamacare do to health stocks and is it time for you to sell?
The Fly in the Ointment
There are two very popular aspects of Obamacare. These are guaranteed issue and community rating. These features of the Affordable Care Act require insurance companies to sell insurance to people even if they are sick and don’t let them jack up the premium for the sick person. The problem for Republicans is that people will not be happy if these two features go away. The problem for the system is that young and healthy people don’t bother with buying insurance because they can always get coverage when they get sick. So they don’t pay premiums and help offset the cost of sick people. Obamacare offers the two attractive features and requires people to get insurance or pay a penalty. The fact of the matter is that for a system that promises universal affordable health care you cannot eat your cake and have it too. The three features need to go together or health care companies will go bankrupt and there will be no one to provide health insurance. The Chicago Tribune says the repeal would look even worse than what we have now.
Can Republicans pass a bill repealing President Barack Obama’s health-care plan lock, stock and barrel? Technically, yes. They have control of the House and the Senate. Democrats in the Senate could filibuster, but I doubt the filibuster survives Trump’s term in any event, so I don’t see this as a permanent obstacle.
There’s still a wee bit of a problem, however, which is that they have to get Republicans to vote for a repeal.
I have no doubt that Republicans would like to vote for something they can call “repealing Obamacare.”
But really repealing Obamacare will make a lot of voters angry and just keeping the attractive parts will bankrupt the system. This is what repealing Obamacare will do to health care stocks.
We have written about the stock market response to a Trump presidency. Mr. Trump may be able to push through tax cuts, stimulus spending in infrastructure improvements and make a deal to bring home massive amount of capital currently sequestered offshore. Many believe this will stimulate the economy, bring on inflation and cause the Fed to raise interest rates, which in turn would drive the dollar higher. But will this help the stock market or will the 2017 stock market be a huge disappointment? Fortune weighs in on the side of a lackluster market in 2017 and says that Trump will be terrible for stocks in 2017.
Even while some Wall Streeters are saying Donald Trump’s presidency could result in stronger domestic growth and a boost to the stock market, a team of Goldman Sachs GS 0.03% analysts led by top strategist Charles Himmelberg are saying, “Not going to happen.”
Stocks already look expensive from a historical perspective, the team says. And Donald Trump is not going to help the matter. As a result, the Goldman analysts are expecting the S&P 500 Index to close at 2200 in 2017-just 18 points, or higher than where it is now. Goldman also expects the price of the U.S. 10-year Treasury bond to drop 0.50% in 2017. The yield, which moves in the opposite direction of price, will end the year up at 2.75%.
The argument behind this opinion is that there are structural factors that are not addressed by Mr. Trump’s plans. There are not enough workers to fill all of the jobs that Trump envisions. Thus the result of more jobs will not be more productivity, profits and higher stock prices but rather increased competition for skilled workers and wage inflation. If Mr. Trump follows through with deporting more willing workers from the USA that will further reduce the pool of available workers.
“We are skeptical,” the team wrote. “Until more clear evidence accumulates showing that the outlook for productivity and trend growth has improved, the opportunity set for investors is likely to remain low.”
All the hyperbolic rhetoric in the world will not keep the already overpriced market from being a huge disappointment in 2017.
Is There Any Hope for Stock Gains in 2017?
The Goldman Sachs analysis has to do with the market in general and certainly applies if you are going to put your money in an index fund that tracks the S&P 500. But are there sub segments of the market that will do better? The Wall Street Journal says that small beats large when looking at the next few months in the market.
Small companies have been among the biggest winners since Election Day.
Investors betting that Donald Trump will roll back regulations and taxes while pumping money into infrastructure projects have driven the Russell 2000 index of small-capitalization stocks to 11 straight sessions of gains Friday, its longest winning streak since June 2003. The index has risen 10% since Election Day, outpacing the S&P 500’s 2% climb.
Hopes for a pro-business combination of a Trump presidency and Republican Congress have lifted stocks broadly. But some analysts think smaller companies could benefit even more, because they are less exposed if Mr. Trump takes a more protectionist approach to trade and if the dollar continues to rise. Either development, along with the growing backlash against globalization as seen in the Trump and Brexit votes, could hurt multinationals and leave smaller, domestic companies relatively better off.
Smaller and domestic stocks may well be better choices if the overall 2017 stock market turns out to be a huge disappointment.
A surprise result of the election of Donald Trump is that shipping stocks are up. This is the guy who promises a trade war with China and Mexico if not everyone else. Forbes writes about the Donald Trump shipping stock boom.
Euroseas is a tiny Greek shipping company with a fleet of 12 vessels and a penny stock traded on Nasdaq. On Tuesday, Euroseas’ shares rose by 100%. Since Donald Trump was elected president, Euroseas’ stock has nearly quadrupled. Seanergy Maritime, another small dry bulk shipping company that moves grain and coal, saw its shares soar by 75% on Tuesday. Shares of DryShips, a Greek shipping company that recently looked like it could be headed for bankruptcy, have climbed by 1,400% since Election Day.
What is going on here? It would appear that people are expecting an economic boom in the USA. We recently asked how the market would respond to a Trump victory.
Trump is essentially proposing another round of supply side economics in which taxes are cut, especially for the wealthy, with the intent that subsequent investment generates more jobs and wealth.
There is talk that he will also cut a deal to reduce taxes on money repatriated from offshore accounts by US corporations. Why shipping stocks are up is because traders believe that tax cuts, repatriated money and infrastructure spending will drive the American economy higher. That means more imported raw materials and, perhaps, more sales overseas. That latter part, however, is problematic. Supply side programs often lead to inflation and we questioned if how the market would respond to inflation.
To the extent that inflation is moderate the Fed can raise rates and help to control it. To the extent that it becomes a run-way phenomenon like forty years ago it will wreck the stock market and the Trump presidency.
A faster rate of economic growth will benefit many, not just those who get jobs in the infrastructure improvements. However, there is an issue with trade and treaties. Trump may believe that he can bring jobs in manufacturing back to the USA. The problem is that the consumer market is driven by people buying things. The Chinese have learned this to their dismay. You cannot just borrow, invest and manufacture. You need consumers and until the consumer market recovers that will not work.
Shipping stocks are up in expectation of boom times in the USA. These stocks were generally depressed due to the Great Recession and a very slow and partial economic recovery. But, what goes up can come down. What happens to these shippers if Trump picks a trade war with China?
Trump’s China Trade War
Bloomberg looks at how a trade war with China would work out.
As a candidate, Trump pledged to label China a currency manipulator, bring cases against China for “unfair subsidy behavior” and use “every lawful presidential power to remedy trade disputes,” including the application of tariffs. He once broached a tax of 45 percent on imports from China, then denied bringing it up.
The problem for Trump is that his argument is at least a decade out of date. China is fighting to raise the value of its currency and not working to drive it down. It has a huge problem with capital flight and is trying as hard as it can to raise the value of the Yuan.
Trump can levy temporary import surcharges on Chinese goods or go with more permanent measures. For China this would be a disaster that would remove hundreds of billions of dollars of trade from its economy. Estimates are that the sort of 45% tariffs suggested by Trump would reduce Chinese exports to the USA by 87%. In return China can buy its airplanes from Airbus instead of Boeing and buy its soybeans and corn from Argentina and Brazil thus hurting the two biggest US exporters, the airplane and agricultural industries. The up side for China is that Trump wants to kill the Trans Pacific Partnership so that China would have its own way in developing an Asia-Pacific trade group that excludes the USA.
Most investors expect President Donald Trump to try to deliver on his promise to create jobs with massive infrastructure spending and re-negotiation of trade deals. Infrastructure spending will generate more economic growth in the USA and boost inflation. The US dollar has already advanced in anticipation of the Federal Reserve raising interest rates to combat Trump-caused inflation. Bloomberg writes about how Trump is seen spurring inflation.
The dollar advanced for a fourth day on bets that higher spending under Donald Trump’s administration will boost economic growth and inflation, convincing the Federal Reserve to raise U.S. interest rates.
A gauge of the U.S. currency climbed to the highest since February, extending its biggest weekly gain in five years, as President-elect Trump unveiled key administrative appointments in preparation for taking power in January. Thirty-year Treasury yields rose above 3 percent for the first time since January on expectations inflation will accelerate.
If we look at whether inflation will cause the market to soar or to crash it is instructive to look at the most recent period of sustained inflation, the 1970’s.
Investopedia writes about The Great Inflation of the 1970’s.
It’s the 1970s, and the stock market is a mess. It loses 40% in an 18-month period, and for close to a decade few people want anything to do with stocks. Economic growth is weak, which results in rising unemployment that eventually reaches double-digits. The easy-money policies of the American central bank, which were designed to generate full employment, by the early 1970s, also caused high inflation. The central bank, under different leadership, would later reverse its policies, raising interest rates to some 20%, a number once considered usurious. For interest-sensitive industries, such as housing and cars, rising interest rates cause a calamity. With interest rates skyrocketing, many people are priced out of new cars and homes.
In its attempt to control inflation the government raised interest rates. Retirees loved 14% interest on their CDs and the fact that their already paid for homes were going up every year in dollar value. But the Great Inflation of the 1970s wrecked businesses and played havoc with the stock market. It ended in an economic condition called stagflation, a combination of slow economic growth, high unemployment, steadily increasing prices and a decline of the nation’s GDP. To the extent that inflation is moderate the Fed can raise rates and help to control it. To the extent that it becomes a run-way phenomenon like forty years ago it will wreck the stock market and the Trump presidency.
Stocks in the Meantime
In the meantime how a Trump presidency will affect the stock market is probably to drive it up. A faster rate of economic growth will benefit many, not just those who get jobs in the infrastructure improvements. However, there is an issue with trade and treaties. Trump may believe that he can bring jobs in manufacturing back to the USA. The problem is that the consumer market is driven by people buying things. The Chinese have learned this to their dismay. You cannot just borrow, invest and manufacture. You need consumers and until the consumer market recovers that will not work.
As it became apparent that Donald Trump was going to win the presidency S&P 500 futures fell 500 points and triggered the circuit breaker. Stocks fell across Asia. And by morning there was some recovery on all fronts. The market does not like uncertainty which is why stock futures fell on the news of a likely Trump victory. But, as we mentioned before the election in an article on our sister site, Forex Conspiracy Report, don’t lose your money on a mistaken first impression.
[W]hat if first impressions are wrong? How many times has the market reacted in one direction to a presidential winner only to reverse direction a few weeks later? According to Bloomberg, that happened with the S&P 500 in 1964, 1968, 1980, 1984, 1988, 1992 and 2012. So, don’t lose your money on mistaken first impressions, whoever is the winner come the morning.
How the stock market will respond to a Trump victory will be depend on what policies are enacted and if the economy and therefore the market will benefit. Trump is essentially proposing another round supply side economics in which taxes are cut, especially for the wealthy, with the intent that subsequent investment generates more jobs and wealth. How has this approach worked before?
Supply Side Economics
Investopedia explains supply side economics.
Supply-side economics is better known to some as “Reaganomics,” or the “trickle-down” policy espoused by 40th U.S. President Ronald Reagan. He popularized the controversial idea that greater tax cuts for investors and entrepreneurs provide incentives to save and invest, and produce economic benefits that trickle down into the overall economy.
Like most economic theories, supply-side economics tries to explain both macroeconomic phenomena and – based on these explanations – offer policy prescriptions for stable economic growth. In general, supply-side theory has three pillars: tax policy, regulatory policy and monetary policy.
The argument against this approach is that increasing the supply of goods and services by aggressive investment does not guarantee increased demand. The Reagan years in the 1980’s followed by the Bush and Clinton years up to 2000 we generally good for the economy. The second Bush presidency applied the same approach with tax cuts and ended up with the second worst recession in U.S. history. If Trump and the Republican House and Senate follow this approach we might expect to see early growth and a higher stock market followed by a bubble and crash. The other aspect of Trump’s stated plans is investment in U.S. infrastructure.
Exactly a year before the U.S. elections we wrote about tax free investment in United States infrastructure. Both Trump and Clinton talked about investing in infrastructure improvement during their campaigns.
While interest rates remain near zero would be a great time to invest in United States infrastructure. The cost of tax payers would in fact be very low and the return on investment of infrastructure upgrade would more than pay for costs.
This sort of policy would create jobs, stimulate the economy and help the stock market. If that is the way Trump and the Republican congress goes we could expect the market to respond well to a Trump victory.
The most chaotic Presidential election season in anyone’s memory is winding down. On the eve of voting the FBI chief re-opened the previously closed Clinton email issue and the market blinked. Read our article if you missed it, Why Clinton’s Emails Matter to the Stock Market. Then the FBI chief announced just two days prior to the election that never mind, there is no new info and no problem. The stock market likes Hillary and stocks went up. Investor’s Business Daily reports that stocks are up big on Clinton relief.
Stocks roared higher at the open Monday, as the market looks for relief from a nine-day pullback.
The Dow Jones industrial average and the S&P 500 both rallied nearly 1.5%, while the Nasdaq composite gained 1.6%. The Russell 2000, which slumped 2% last week, rose 1.7%.
Stock futures and global markets rallied aggressively after FBI Director James Comey issued a letter to Congress. Comey declared a review of the emails that led to the agency’s reopening its investigation into presidential candidate Hillary Clinton did not alter the bureau’s prior conclusion that no charges were warranted against her at this time.
Tokyo’s Nikkei 225 jumped 1.6%. In Europe, the CAC 40 traded up 1.8% and Frankfurt’s DAX was 1.7% higher near midday. The FTSE 100 in London climbed 1.5%.
The point is that Clinton is likely to win the election and because the market likes predictability they like Clinton. The general consensus is that if Trump made it in the market would immediately fall as would the U.S. dollar.
Depression Fades and Hope Returns
Investors do not necessarily like Hillary Clinton but the market likes Hillary because people believe that stocks will go up 11% if she is elected and much of that projected increase was already priced into the market before the late FBI bombshell followed 9 days later by an oops. The Wall Street Journal reports that stocks and the dollar jump on the most recent news.
Stocks, oil and the dollar jumped Monday, while gold and the yen sold off after the FBI said no new evidence was found to warrant charges against presidential candidate Hillary Clinton.
Monday’s gains marked a rebound for stocks after the S&P 500 posted nine consecutive sessions of losses-its most prolonged streak of declines in almost 36 years. Some investors blamed tightening polls for the fall, and interpreted the FBI’s announcement as enhancing Mrs. Clinton’s chances of winning in this week’s race as well as removing an element of uncertainty in the event she is elected.
Many investors believe a victory for Mrs. Clinton would be more supportive of risky assets such as stocks, at least in the short term, and that a period of market calm following her victory would also help keep the Federal Reserve on track to raise interest rates at its next meeting, propping up the dollar.
The fact that the S&P 500 posted its largest number of consecutive losing days since 1980 is a measure of how concerned the market was. Time will tell how well the market does after the election but for now the market likes Hillary and is pleased that her chances of winning just improved.