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Clawing Back: After Huge Plunge on Trump Win, Stocks Recover Some Losses

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November 9, 2016

(Wednesday Pre-Market) Investors awoke to a sea of red Wednesday morning, and we’re not just talking about the Electoral College map of the United States.

Stock markets around the world, including U.S. stock futures, fell after Donald Trump pulled out a surprising win in the presidential election. At one point, U.S. stock futures were down by their exchange-mandated trading limits. However, by early in the day, most markets had recovered a great deal of their losses, and S&P 500 (SPX) futures were back above 2100 after falling more than 100 at one point overnight down to the 2030 level.

Meanwhile, VIX futures climbed back above $20 at one point overnight, but were back down to about $18 with an hour to go until the market open. That’s a lot less of a reaction than we saw earlier this year with Brexit.

Though the markets seem to be somewhat calmer this morning than they were overnight, investors might not want to get too confident. Stock markets have a history of re-testing overnight lows during their regular trading hours. Though that’s not necessarily going to happen today, it could over the next few weeks. The SPX 2030 level has been a key one over the last year and a half, and the market has a history of testing that level and then bouncing back up or going back below it.

The idea now is to be very careful about going back into the market. Review the portfolio. If there are areas analysts think might do well in a Trump presidency, investors might want to just nibble for now, and not go all in. Don‘t get carried away, and remember, what’s said about policy on the campaign trail doesn’t always translate into actual policy. In the long run, a Republican president and congress tend to be good for business, but it’s still more than two months until the new president takes office.

Continue to keep an eye on crude oil, which fell sharply overnight but recently had recovered its losses and was trading back above $45 a barrel. As we’ve seen, oil prices can often serve as a good barometer of how the broader economy is performing.

S&P 500

FIGURE 1: SEEMS SO LONG AGO.

The S&P 500 (SPX), plotted through Tuesday on the TD Ameritrade thinkorswim® platform, see-sawed overnight from yesterday’s closing levels, bouncing off 2030 in futures trade but rising back over 2100 by early Wednesday. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

Get Ready for Wholesale Inventories: Election or no election, the constant flow of data continues. A bit later this morning, investors get a read on September wholesale inventories, and Wall Street analysts expect a 0.2% rise, compared with a 0.2% fall in August, according to Briefing.com. The wholesale inventories data are the second significant economic report of the week, following a slight rise in the JOLTS job openings for September reported Tuesday. Recent economic reports have been showing positive signs for the economy, so we’ll see if today’s data continue that trend.

U.S. Bond Yields Touch Highest Level Since March: In the wake of the Trump victory, benchmark U.S. 10-year yields climbed to 1.93%, their highest level since mid-March, and expectations for a Fed rate hike in December also rose. The chance of a hike is now at 76%, according to CME Group futures.

Big Earnings Day Coming Up Thursday: The parade of earnings continues, with Thursday morning looking pretty busy. Some of the key names reporting tomorrow morning include Kohl’s (KSS) and Macy’s (M). Both are expected to report earnings per share down from a year ago, according to Briefing.com. After Thursday’s close it’s time for Walt Disney (DIS), and, once again, analysts expect a decline in year-over-year EPS, Briefing.com said.

Good Trading,
JJ
@TDAJJKinahan

Economic Calendar

FIGURE 2: THIS WEEK'S ECONOMIC CALENDAR.

Source: Briefing.com

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