November 8, 2016

Stocks opened modestly lower but quickly turned around on election day (Dow +74 pts; SPX +.3%). The defensive sectors (utilities, telecom) are performing the best in early trading. Transports, retailers, and biotechs are lower after yesterday’s rally. European markets are poised to close modestly higher and most of Asia was higher overnight. WTI crude oil is up a bit to nearly $45/barrel and other commodities are also participating. Don’t miss the fact that copper and iron ore are up almost 10% this month. These commodities say a lot about global economic growth. Bonds are selling off a bit. The 5-year Treasury yield backed up to 1.33% and the 10-year is trading at 1.86%. Rising rates are signaling one or more of these factors: rising Fed rate-hike expectations; higher inflation; rising economic growth expectations. 

RBC Capital Markets estimates a Clinton win today will allow the stock market to move up another 3-4%, whereas a Trump win will likely produce a 10-12% correction. 

Third quarter earnings season is nearly complete. Thus far, 440 of the S&P 500 companies have reported. About 56% of them beat Wall Street revenue forecasts and 76% beat earnings forecasts. Taken together, companies have reported revenue growth of 2.8% y/y and earnings growth of nearly 3% y/y. That’s good news, signaling an end to the earnings recession. Once the election is over, we can all pay attention to such things again. For capital markets, growth in corporate profits is far more important than the outcome of the election, at least in the long run.   

CNBC interviewed a number of highly regarded money managers yesterday, on the eve of the election. Rich Bernstein said, “You never take investment advice from Washington. It’s always a distraction.” He advises us to “focus on is the fundamentals,” which are improving. “Right now, you’re beginning to see the recovery in corporate profits. The leadership in the stock market has been telling you that, with cyclicals leading the way.” 


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