November 7, 2018

The stock market surged higher in the wake of mid-term elections that turned out exactly as Wall Street expected. Investors are embracing gridlock in Washington. The Dow and SPX are currently up 348 pts and 1.5%, respectively. All eleven major market sectors are in the green, led by tech, healthcare and consumer discretion. Breathing a sigh of relief that the Democrats didn’t take the US Senate, pharmaceutical and biotech stocks are up well over 1-2% in early trading. Banks are only modestly higher, sticking out like a sore thumb. European markets are poised to close up over 1% but most of Asia was down overnight. The US dollar is weaker on the day, but that’s not helping commodities much. WTI crude oil is down 1% to trade around $61.50/barrel (back to April lows). The slide in energy prices will certainly help keep inflation in check in the fourth quarter. Bonds are moving higher in price, lower in yield today. That’s probably because Democratic control of the House may limit President Trump’s ability to push for higher government spending (and deficits).

Anthem (ANTM) surged 6% this morning along with other health insurance carriers after the election. Bloomberg notes, “a divided Congress removes the risk of major changes to the US health system.” There is now less chance that Republicans can repeal or change ObamaCare because they don’t control the House. There is also no chance that Democrats can push for their desired single-payor system.

Earlier this week, CVS Health (CVS) reported better than expected third quarter results and said it will close the planned merger with Aetna (AET) this month. CVS managed to post an incredible 6.7% increase in same-store-sales during the quarter, the highest since 2012. Not only did the pharmacy perform well (same-store-prescriptions +9.2%), but the front of the store also revived. The company’s pharmacy benefit management services, which has been challenged by competitors, managed to grow 2.6%. This is a big deal for a company that saw its stock tank 46% over the past three years. CVS stock is up about 8% since the announcement, and AET stock is up 4.7%.

The S&P 500 Index (SPX) has now retraced more than half of its October correction. Trading at 2,799, the index will likely test a resistance level at 2,810 very shortly. The next overhead resistance levels correspond with the 100- and 50-day moving averages at 2,820 and 2,862, respectively. In other words, for the next few days the path of the market is likely slightly higher.

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