Morning Minutes 11/4/2020

Morning Minutes

Overnight Election Volatility Evolves Into Morning Gains For Stocks 

November 4, 2020

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Market Commentary By:
Colin Cieszynski, CFA, CMT
Chief Market Strategist
ccieszynski@siawm.com
+1 (647) 282-4428

To no surprise US index futures were volatile overnight as votes in the US election were counted with the Dow swinging back and forth in an 800-point range and the S&P swinging within a 100-point range. This morning finds US index futures moving into the green with NASDAQ futures leading the charge with a 3.5% gain, S&P futures rising 1.6% and Dow Futures up 0.6%. Overseas, the Dax and the FTSE are both up 0.7%, while the Nikkei rallied 1.7% and the Hang Seng fell 0.2%.

Up to the time of writing, the Presidential Election contest has not been declared but based on leading+elected state data form Associated Press at the time of writing, President Trump appears to be heading for re-election by a smaller margin than 2016, the Republicans appear to be heading for a smaller majority in the Senate and the Democrats appear to be heading for a smaller majority in the House.

If these results stand, the bottom line would be more of the same with no decisive changes and potentially even more gridlock due to the closer seat margins. The big Blue Democratic wave suggested by polls didn’t happen, but there was no substantial hidden Republican vote either. However, if the results change significantly as remaining votes are counted, particularly on the Presidential side, a legal battle could ensue which potentially increase volatility and uncertainty once again.

One immediate impact of the election on stocks has been the passage in California of a proposition to classify app-based drivers (and some other types of “gig economy” workers) as independent contractors rather than employees which has ignited premarket gains of 14.5% for  Lyft and 11.5% for Uber.

In economic news, US ADP payrolls came in lower than expected (365K vs street 650K and previous 749K).                                                           US ISM non-manufacturing PMI is due at 10:00 am EDT with the street expecting the headline number to fall slightly (street 57.5 vs previous 57.8), new orders to fall significantly (street 49.4 vs previous 61.5) and prices paid to rise moderately (street 61.6 vs previous 59.0).

Trading action in currency markets suggests a status-quo election result as Gold plus the major paper currencies are holding steady relative to the US Dollar, while Silver is down 0.6%. Commodity action is constructive with WTI and Brent Crude oil climbing 3.0% and copper climbing 0.3%.

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