US Presidential Contenders Take Markets on a Turbulent Ride

November 2, 2016
By Vlad Karpel

Election uncertainty rules the day, as stocks see another round of declines. The S&P 500 is currently at 2102.69, a slight dip of 0.43% from Tuesday’s close. New poll numbers are starting to upset the widely held belief that Hillary Clinton would easily emerge victorious on election day. An ABC/Washington Post poll is now showing Donald Trump leading Clinton, albeit by 1 point. Another series of leaked correspondence from the Clinton campaign- along with a renewed FBI investigation- has given her rival rhetorical cannon fodder on his campaign trail.

Stock futures are certainly feeling the effects of this election cycle. Investors are moving away from riskier investments and into market mainstays like gold and currencies. Gold is holding above a one-month closing high from Tuesday, climbing 1.29% to $1,304.6. SPDR GOLD TRUST (GLD) is at 123.64 currently, with a positive vector outlook for the next 10 days. Today, we see a 122.73 Low and a 124.80 High with a standard deviation of 0.37. Looking 10 days out, our models show resistance topping 126 and support oscillating between 123 and 125.



The US dollar is under pressure because of investor migration to the Japanese yen. The greenback is strengthening against a weakening Mexican peso because of a potentially viable Trump victory.

With post-Brexit market reactions still fresh in our memory, investors are weary of new polls showing a national toss-up. In an effort to deal with this, Index futures have narrowed losses. Because S&P 500 futures have declined four points against fair value, equity futures are trading slightly lower.

Treasuries are trading higher with the long end of the curve outperforming expectations. 2-year note yields have sank two basis points to 0.82%, while the 10-year note decreased three basis points to 1.80%.

Crude oil is seeing a downturn, which is resulting in greater market pressure. The American Petroleum Institute reported stockpiles increasing by 9.3M barrels, which is 4.5M above its last report of 4.8M. Gasoline has declined 3.6M barrels, again topping its last report of 1.7M by 1.9M. These numbers all precede a Dept. of Energy stockpile data report due later today.  Looking at USO, a crude oil tracker, our 10-day prediction models are showing a consistent decline. Today, we see a 10.29 Low and a 10.60 High, both with a standard deviation of 0.05. The downward vector will increase from ~1-3% to double-digits of ~10-12% by November 15.



The Fed will be wrapping up FOMC meetings today. Keep an eye on these announcements because they will certainly have implications on Utilities (XLU). Expectations are that interest rates will not be raised now, but FOMC will likely preview a hike toward December of this year.

The Employment Situation Report is due to be released this Friday, 11/4. This report is worth noting, as the numbers will have an effect on sectors such as Consumer Discretionary and Consumer Staples. Preceding this is the ADP National Employment Report, which is less influential but nevertheless offers broader context. This report is showing an increase of 147,000 jobs in October, as well as a positive September revision from 154,000 to 202,000. A consensus is anticipating 175,000 non-farm payrolls.

Unpredictable election news, mired by cyber-espionage, is likely to drive volatility. The CBOE Volatility Index (VIX) is hovering at 19.15 currently, which is drastically higher than last week’s low range of ~13-14. Our Stock Forecast Tool’s 10-day prediction model is showing VIX remaining steady for the next week, then declining rapidly after election day (11/8).



Taking a break from election woes, let’s take a look at developments in US corporate news. Valeant Pharmaceuticals International (VRX.T) just announced an interest in selling its underperforming Salix division. The new drug , which treats irritable bowel syndrome, was poised for much higher earnings than current results. Valeant shares fell over 4% today after rocketing 30% late Tuesday.

Electronic Arts (EA), known for their portfolio of massively popular games like Call of Duty, is enjoying a 5% rise in premarket. EA has released earnings results which topped expectations. Newly released Battlefield 1 is receiving high praise and many speculate it will eclipse EA’s recent online shooter, Titanfall 2.

Etsy Inc. (ETSY), the open marketplace of notable fame, saw an increase of 2% after exceeding revenue predictions late Tuesday. Other companies due to report include Facebook (FB), and Whole Foods Market (WFM).

In M&A news, Time Warner (TWX) saw a 2% share rise, a likely result of settling news around a massive merger with AT&T (T). Broadcom Limited (AVGO) is entering agreements to acquire Brocade Communication Systems (BRCD) for $5.9B. Brocade saw shares increase 6% in premarket.

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