Election Night Recap: Markets, Momentum, and What’s Next for Your Portfolio

Stocks rallied as traders placed their votes on the next President of the United States. ISM Services Index beat economists estimates handily, as its Employment series shows sign of a stronger-than-expected labor market - good news for the economy, maybe not so much for the soft side of the Federal Reserve' s FOMC.

Tea leaves are settling - time to read them. After about 10 handfuls of sugary granola (and maybe 5 or 6 Halloween themed Oreo cookies), I settled in to my office chair last night preparing to give my live thoughts to CNBC and Bloomberg. It was going to be a long night after a long day - before another long day. I had the TV on low as I watched one data expert after another smudge their fingers across big election maps. Every station now has a "wiz with numbers," borne out of Trumps first surprise win over Hilary Clinton. AND yes, I do remember a day where you stayed up as long as you could watching your regular TV shows awaiting a "Breaking News" interruption. You were lucky to find out the next morning when you woke up and opened your Wall Street Journal. If you lived in New York, you would rely on the New York Times to boldly project a winner long before all the votes were counted. Simpler days, indeed.

Last night I watched the election unfold minute by minute with one eye, switching between different news channels, and the other eye focused on my massive screen of Bloomberg charts. The beauty of those charts is that they were not just minute by minute, but tick by tick. And what those charts told me was not just what the markets thought of the results as they came in, but about the momentum of the votes, and, ultimately, gave us a clue as to what we might expect in weeks and months ahead. So here you go. Oh, let me say, at this time in the morning, though Harris has not conceded, some news outlets have declared Trump the victor, and, not shockingly, so has Trump himself. Some of the media has not yet projected Trump as winning, but they are certainly implying it. The Senate has flipped to the Republicans and the jury is still out on the House. Let's dig into the charts.

Let's start with what charts I watched, beyond the obvious S&P500 futures chart - CALM DOWN, we'll get there. Indulge me. A big topic of discussion lately has been the rise in 10-year Treasury yields. It has been happening and I have been all over the press talking about it. Despite what many assume, it has less to do with the Fed's interest policy and more to do with the realization that either candidate was likely going to increase the deficit which would mean more debt. AND, for the record, though it probably doesn't matter this morning, the projections if increased debt between Harris and Trump were not as big as you might expect, though the projections under Trump were clearly larger. So, let's start with a tick chart of 10-year Treasury yields. Have a look.

This picture should be worth a thousand words. Keep reading and I will show you some more cool chart tricks. Under a Trump Presidency 2.0, his tough proposed trade tactics would be bullish for the US Dollar. First, and most obvious, tough trade sanctions against US trade partners would weaken their economies and their currencies propping up the US Dollar. Second, rising local bond yields cause local currencies to gain as foreign capital enters the US to take advantage of rising yield differential, requiring currency conversion, ultimately bidding up local currency values. Check out this following tick chart of the US Dollar Index. Stay patient, please.

The US Dollar Index tracks the value of the US Dollar versus a basket of its trade partners. You will note that this chart reflects the rise in the Dollar value as the first Trump wins were projected with a surge in the first key swing state win. Ok, now what does this all mean for another top-of-mind market driver, namely the Fed and interest rates? Take a look at this next chart. Go on, we're getting there.

This is a chart of Fed Funds Futures which are used to predict Fed Funds in - um, the future. I decided to look at December of next year, which would give Trump almost a full year in office to show his hand on policy. You will note that the tick chart followed 10-year and currency charts for the most part. Ultimately, however, you should note that, according to futures, at least one 25-basis point cut disappeared overnight. Why? Well, because Trumps proposed tariff policy along with his proposed stimulatory policy are considered inflationary - going against the Fed's desire to ease monetary policy.

Ok, so we are finally getting to the punchline. Pay attention, now. Let's dig in. Have a look, my friends.

And there you go. By 6:00 AM Wall Street Time, S&P futures have added some 2.25% since yesterday's close. The path followed Trumps projected wins even more closely than the typically sensitive bond market. Let's talk about notable equities in the premarket. Topping the list of S&P500 gainers is Tesla, up by almost 12%; ignore this, but it is a signal of some sort. We see the top of the pre-market leader board filled with financials like JPMorgan (+6.7%), and industrials like Caterpillar (+5.9%). Banks are expected to win in a lighter regulatory environment, and Industrials, American-based industrials like steel manufacturers and heavy equipment manufacturers are expected to benefit from an American protectionist environment which will include heavy tariffs on their foreign competitors. Notable no-shows include semiconductor superstars. Semiconductor ETF SMH is up by only 0.76 in the premarket. An outlier to that group is Intel, up by +4.2% which is expected to benefit from a Trump American first initiative - Intel is a notable, struggling chip company in a sea of recent winners. Notable losers are solar manufacturers, specifically ones that produce in China. First Solar will not only have friction in a less green-friendly environment, but some 70% of its suppliers are non-US entities. Its stock is down by around 14% in the premarket.

All in all, all four major equities indexes are higher, led by small caps (+5.5%). Not shockingly, the 2/10 Treasury yield curve has steepened by some 18 basis points. Bitcoin is higher by around 8% due to Trump's declared love for crypto. So, what can we expect going forward? I will show you two final charts which should help answer this question. First let's look at 10-year Treasury yields leading up to yesterday.

This shows 10-year yields (white line) overlayed with Real Clear Politics average poll chances for Trump (red line) from July 21^st when Harris first emerged as a candidate through yesterday's close. This shows that there is indeed a correlation between yields and a Trump presidency. This is a good indicator that trend will likely continue with Trump in the White House. In other words, more curve steepening and higher long-maturity bond yields. I can show you another chart with the US Dollar Index which looks almost exactly the same as the10-year chart with high correlation. AND - FINALLY, check out the chart you were waiting for.

So, here it is. The correlation is not as clean as the 10-year or the US Dollar Index, but there is indeed a noteworthy fit. It is important to note that the S&P500 only gained around 1.7% since Harris entered the race, but its roundtrip followed Trump's prospects pretty closely. I won't bore you with a longer-term trend chart of the S&P500 (you can check it out in my daily chartbook), its long-term trend is clearly positive. At a high level, a continuation of the trend should be a base-case going forward. That, of course, can be strengthened or weakened by what the Fed does and says on Thursday, as well as all of the important earnings announcements yet to be released in the days ahead. Expect lots of jockeying in the equity markets as speculators attempt to game a Trump win. With that, I will urge you, as I always do, to please be patient and maintain your long-term focus. Stay tuned.

YESTERDAY'S MARKETS

NEXT UP

• This morning, MBA Mortgage Applications (November 1^st) showed a -10.8% decline for the week after slipping by -0.1% in the prior week. Not surprising given the ongoing climb of mortgage rates.
• After the closing bell earnings: Corteva, Albemarle, AppLovin, Energy Transfer LO, Gilead, McKesson, Match Group, Dutch Bros, Lyft, QUALCOM, AMC Entertainment, elf Beauty, Zillow, and Hubspot.

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