On Eve of Elections, Markets See Reversals

Political news has held sway over markets recently, and today’s developments are no exception. The FBI, after announcing a re-opening last week, has abruptly dropped the investigation surrounding Hillary Clinton’s email controversy. Clinton, the stability candidate, is now more likely to see a win and this is dampening volatility concerns. Across the board, we can see a collective sigh of relief as the markets avoid more uncertainty.

The S&P makes a comeback and volatility wanes.

The S&P 500 rocketed back today after closing its ninth-day of a losing streak on Friday. The index is trading at $2127.25 currently and steadily climbing. For context, its prior close on Friday was at $2085.18. Futures are showing good signs across indexes as well.  Dow futures are up more than 200 points, S&P futures rose 1.3% and the Nasdaq 100 futures have increased 70 points. VIX and gold are both declining, which we will detail below.

Investors emerge from their safe refuge in gold and yen.

Following the rounds of US political news was a court ruling in London regarding the timeframe and transition process for Brexit. Although the ruling indicates a pragmatic approach, it still has an effect on market behavior and investment strategies.

Gold has dropped $23.30, or about 1.8%, to $1281.80.  Using SPDR GOLD TRUST (GLD) as a tracker in Tradespoon’s Stock Forecast Tool, we see a positive vector outlook for the next 10 days. It is currently trading at 122.19 with a 122.09 Low and a 122.71 High. The standard deviation today is 0.30. Looking 10 days out, our models show resistance edging slightly above 127 and support sticking around 125. Keep in mind, however, that political news in the middle of an election cycle is one thing our models can not predict.

The US dollar is now gaining on the Japanese yen. The yen is currently trading at 104.55, up from a 103.10 Friday closing. Prior to the FBI announcement, investors were shifting to the yen as a way to bunker down until post-election markets.

The CBOE Volatility Index (VIX) is currently down 17.10% at 18.67. Our Stock Forecast Tool’s 10-day prediction model is showing downward movement, turning sharply after the election.

Crude oil climbed 1.8% in early trading today and is currently at $44.23. Again, political outlooks are driving investment decisions, with each candidate holding opposing energy policy. A Clinton win would likely spark a rebound, as subsidies may be taken away from the industry in a move toward renewables. Production could become more expensive, thus driving up the price per barrel. Trump is assumed to ramp up domestic production in an effort to show US energy independence.

Looking at USO, a crude oil tracker, our 10-day prediction model shows consistent decline. Today, we see a 9.61 Low and a 9.98 High, both with a standard deviation of 0.05. The downward vector will move from ~1.5% to ~9.5% by Nov. 10, and will hold at -10.08% from Nov. 11 to Nov. 18.

The FOMC meeting concluded last week with a decision to maintain interest rates at the moment. After parsing through this report, most analysts expect rate hikes in December. This is congruent with the recent Employment SItuation Report, released this past Friday. The report shows a healthy addition of 161,000 jobs in October, and the unemployment rate receding under 5% at 4.9%. It is unusual that the markets have not reacted as sensitively to these numbers, but it is understandable considering the US political situation.