Stock markets around the world continue their remarkable post-election turnaround. Dow futures continue to move into record territory adding over 100 points to the 1000+ point rebound from Tuesday overnight lows to Wednesday's close. S&P futures are up 0.6% while NASDAQ futures are up 0.9%.
Overseas markets are also cheering the results. The Nikkei staged a massive 6.7% catch up rally overnight also boosted by a weakening Yen. European indices also continue to climb this morning with the FTSE up 0.6% and the DAX up 0.9%.
Several factors appear to be driving markets higher. First is a sense of relief that this incredibly long and exhausting 18-month campaign is finally over. Ignoring the protests and temper tantrums from the losing side, who appear to have forgotten people have the right to a contrary opinion from theirs, traders appear relieved that the campaign has ended in a decisive result with one party in control of the White House, Senate and House, giving them the ability to implement an agenda for change.
Second, traders appear to be applauding what looks like a once in a generation political realignment and the potential for a business growth and infrastructure spending agenda to take hold with the potential to benefit the broader economy, particularly depressed regions and not just the elites.
Third, it looks like there will be some continuity at the Fed with the market thinking Janet Yellen may see out her term and that moves toward normalizing interest rates would be welcomed by the incoming administration. Some of the doves at the Fed most closely linked to the Obama Administration have lose clout following the election particularly Lael Brainard. Today’s speech from St Louis Fed President Bullard, who swings back and forth between the two camps and has been dovish lately, may give a better idea of which way the wind is blowing at the Fed.
A number of stocks and sectors staged big moves yesterday as the street sorted out winners and losers from the election fallout. Areas that gained include traditional energy, infrastructure (heavy equipment, engineering, construction), pharmaceutical + biotech companies (reduced risk of tougher regulations on drug pricing), banks +brokers (potential for less regulation) miners (especially gold companies) and others. Markets that lost ground included hospitals and health insurers who had benefitted from Obamacare, alternative energy sectors who had benefitted from Obama initiatives and some companies exposed to trade. The potential for increased infrastructure spending driving higher demand for metals and building materials has copper soaring another 3.7% today leading gains in base metals that could also drive renewed interest into the shares of base metal mining companies.
The risk of NAFTA renegotiation and other Trump promises continues to weigh heavily on the Mexican peso. The Canadian dollar has stabilized following a smaller decline. Some companies in Canada dependent on cross border trade were impacted by trade concerns like auto parts producer Magna International (TO:MG). The potential for trade disputes to impact the auto sector in particular may also explain why platinum has been underperforming gold and silver lately.
Today the focus in Canada shifts back to earnings with positive news out this morning from Canadian Tire (TO:CTCa), WestJet (TO:WJA) and Manulife Financial (TO:MFC) while earnings and guidance from Bombardier Inc (TO:BBDb) were mixed.
Interestingly, the euro has been getting absolutely crushed in the wake of the US election particularly against GBP and USD, the two countries where populist campaigns have been successful this year. This may be a recognition that the pendulum of politics is starting to swing in a different direction leaving the moribund EU uncompetitive. It also may reflect growing recognition the increased potential for populist or Euroskeptic movements succeeding at upcoming votes in Italy, Germany and particularly France could put the struggling Euro project at risk.