No matter what your political affiliation is, there is a whole heck of a lot of wtf today from citizens, investors, politicians, pollsters and the press. I think it is safe to say that few (even Trump) saw such a resounding electoral college victory in the cards (despite what appears to be a nearly even popular vote tally), there were certainly few political pundits who did, and investors appeared to be voting their with wallets that the election would result in a Clinton victory. Not only did I want Trump to lose for a whole host of reasons, I was fairly convicted and invested in the notion that he would.
Pundits are calling this the biggest political upset in the history of the United States, and the result is an example of conventional wisdom, group think etc being thrown out the window. The crowd was in agreement that a Trump win, while a low probability would result in a high probability sharp sell off in financial risk assets. At one point last night the S&P 500 futures were locked down 5%, now basically unchanged. Still too early to call, but there is a whole heck of a lot of wrong going around today.
Yesterday we penned a post titled The Morning After, where we laid out some scenarios for S&P 500 (SPX) sectors that have been affected by political rhetoric of the election season, working on the premise of a Clinton win.
Current polls point to Hillary Clinton being sworn in as our next President of the United States on January 20th. As far as what that means for policy, Clinton is a typical left of center Democrat, in a few ways more to the center than President Obama. With a handful of Senate races very tight, it’s impossible to tell if the Democrats will retake the Senate, and depending on how up to 5 toss-up races go control of the Senate is likely to hinge on 1 of those close races. The House is almost guaranteed to stay in Republican control. This is post is not partisan, I’m merely attempting to get my arms around how things might shakeout the morning after the election looking forward to power changes in DC and how that will affect stocks.
Yesterday we started the day with a post Wall Street, Main Street and the Beltway comparing our pre-election mood to that of the pre-Brexit vote in late June:
Prior to the the UK’s Brexit vote in late June, I took a fairly apathetic view to the prospects of a Leave vote, and expected the people of the UK to vote to Remain in the European Union. On the eve of the vote I suggested (Cause I Don’t Want to Be… Anarchy):
The Bremain/Brexit referendum in the UK mirrors the Trump/Clinton match-up in many ways. Trump’s candidacy represents a similar itch to lay flames to the globalized status quo and roll the dice on a bit of isolationism anarchy. But as we’re seeing, the likelihood that a majority of citizens ultimately pick anarchy is lower that the media would prefer for ratings.
Wrong and Wrong again.
While it has been unavoidable (to the dismay of many readers) for us not to sprinkle in our political views with our market views, we did conclude the prior post with the following nugget (which as of 11pm last night, when the SPX futures were down 5%, looked to be valued added):
For those who want to make a bet for financial anarchy here in the U.S., in the lower probability outcome that Trump wins, or Clinton doesn’t win by enough and the victory can be contested, then it’s worth noting that SPY options that expire on Friday’s close are pricing about a 2% move in either direction between now and then. Seems fair. For those looking for a lotto ticket, or merely a short term hedge, the SPY 213 puts (vs stock ~ $213) closed yesterday at ~$2.10, about 1% of the SPY’s price, in dollar terms I’d say that’s cheap as chips!
Wrong again with the SPX unchanged on the market open.
I’d love to tell you that our (CC and my) political leanings clouded judgement, but we were looking at the polls, and the polls missed a group of unlikely voters, especially in the Upper Midwest.
So I will leave you with this, as the election fades and the markets take center stage in this morning space, I have to be honest that I am deeply saddened by the outcome of last night’s election and what it means about how we view ourselves as a country. I recognize there are tens of millions of Americans who have the exact opposite reaction to mine. But as the shock wears off I just hope those that were staunchly opposed to President-elect Trump’s views, demeanor and level of sanity will find some common ground with those that wanted to blow up the whole damn thing, and make sure we hold to the ideals that have always made America Great.