Monday, November 7, 2016

And Here Comes the Boom – Election Day is Upon Us

Monday, November 7, 2016 - US Equity Markets continued their longest losing streak in 36 years having 9 consecutive down days thru Friday.  Uncertainties plagued investors. First, a Clinton victory became more uncertain as the days passed and her solid lead eroded daily with the news headlines. Accordingly, as Trump narrowed the gap, stocks began to sell off as investors began to calculate the consequences of a Trump victory. The VIX index ended the week at 22.5. Pharmaceutical stocks tumbled as news that US prosecutors are nearing an end to their investigation into suspected price collusion in the generic drug space. Upside volatility returned to UK assets as England’s High Court ruled that the Parliament would need to approve the UK’s departure from the EU. Oil prices dropped as attempts to stabilize production fell apart due to internal discourse. Despite the drop in oil prices, Energy related ETFs such as IEO, XLE, IXC, FILL, IYE, OIH, PXI, XES, look attractive with Scores of 69 or better according to our models.

Mixed news from economic indicators fueled investors’ fears that a Fed interest rate hike is right around the corner. While Consumer Spending declined sharply in Q3 from Q2, going down from 4.3% to 2.1% due to a decline in consumer confidence – no doubt from the uncertainties surrounding the election,  ISM manufacturing survey rose despite a stronger dollar rising from 51.5 in September to 51.9 in October – exceeding most economists forecast. More importantly, the ISM Services Prices Index also rose which added ammunition for Hawks to raise interest rates to keep the economy from overheating. Average hourly earnings for private sector workers rose 2.8% year-over-year. Additionally, job numbers for August and September were revised upward. Unemployment dropped to 4.9%. The Treasury Yield Curve steepened which led investors to pull money out of fixed income ETFs in favor of TIPs and TIP related ETFs like TIP, IPE, LTPZ, SCHP, SIPE, and STIP.

With one day to go until voters take to the polls, ETF traders gambling on a Trump victory might consider shorting multinationals and foreign stocks of export oriented Asian Countries, as well as Mexican assets – both the peso and stocks. Coal sensitive ETFs like KOL, RSX for Russian Stocks and a number of ETFs offering Gold/Silver exposure, such as SGDJ, SIL, and SGDM  could bode well short-term in the event of a Donald victory.  Cowboys could play the leveraged double,triple or Short ETFs for the Election week trade.

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