Market headed for post-election rally?
As voters head to the polls, traders are voting with their cash as key cyclical stocks perk up for the first time in months.
The financial markets have been a bit of a dead zone over the past three months after surging in September on the back of aggressive monetary policy stimulus. Over the past two weeks, the major averages essentially flat-lined as everyone awaited the decision of the American people on Election Day.
Yet now, as people head to their polling places, Wall Street is coming back to life in a way that hasn't been seen since last summer. Key economically sensitive, cyclical groups are springing. Semiconductor stocks, left for dead since July, are surging. Core industrial stocks are breaking out.
By all indications, we're on the cusp of a post-election rally.
The chart above says it all. The Morgan Stanley Cyclical Index ($CYC), which includes names like Caterpillar (CAT) and Ford (F), is pushing up and over its September high. This comes despite an ongoing slowdown in manufacturing activity at home and overseas. The JPMorgan Global Manufacturing PMI contracted for its fifth consecutive month in October.
Data out of the eurozone look particularly bad, with the Composite PMI (including services and manufacturing) pointing to outright recession and a 1% drop in GDP.
So why the rebound in the face of all this? After all, major policy hurdles including the fiscal cliff of tax hikes and spending cuts worth 5% of GDP will need to be cleared in Congress after the election. Bipartisanship may be hard to find after a hard-fought election and razor-thin vote-count margins.
We also have ongoing tremors of trouble in Europe, with Greece's coalition government fraying at the prospect of approving additional austerity measures Wednesday and China kicking off its leadership transition with the National People's Congress on Thursday.
The corporate sector is already struggling this earnings season, with cost cutting no longer an easy avenue to earnings growth, given subpar revenue growth.
My hunch is that the market is pricing in an upset victory by Romney.
For one, the polls in the battleground states are within the statistical margin of error.
Two, polling organizations have been oversampling self-identified Democratic voters, given the blowout we saw in 2008. For instance, the latest national poll from Rasmussen Reports, which is fingered as a Republican-leaning pollster, has Romney over Obama 49% to 48%. But that result is padded, given Rasmussen's assumption that 39% of voters will be Democrats and 37% Republicans.
New results from Gallup show that while the Democratic-Republican split in 2008 was 39%-29%, it has flipped to 35%-36%. Include learning voters, and the split is 46% Democrat and 49% Republican.
Add it all up, along with some polling suggesting Pennsylvania and its 20 Electoral College votes are in play for Republicans for the first time in decades, and we could be on the cusp of an upset.
Whatever the cause, this appears to be a tradable medium-term uptrend. I am dumping my remaining shorts and adding new positions Industrial Sector SPDR (XLI), Freescale Semiconductor (FSL), ON Semiconductor (ONNN), U.S. Steel (X) and the Direxion 3x Semiconductor Bull (SOXL) to my Edge Letter Sample Portfolio.
Disclosure: Anthony has recommended XLI, FSL, ONNN, X, and SOXL to his clients.
I found these positions with the help of technical screens developed with Fidelity's Wealth Lab Pro back-testing tools, which you can find here. (Fidelity sponsors the Investor Pro section on MSN Money.)
Be sure to check out Anthony's new investment newsletter, the Edge, and his money management service, Mirhaydari Capital Management. A two-week free trial has been extended to MSN Money readers. Click the link above to sign up. Mirhaydari can be contacted at email@example.com and followed on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.
I agree with Don Moore. When I first read your columns I was under the impression that you knew what you were talking about, but as time goes by and as Don pointed out, two days ago it was "get out of the market and lie low" and today it's "good news". What do you use to make your market predictions? A Magic 8 ball?
The odds heavily favor an Obama win (see Nate Silver's fivethirtyeight.com). Romney's chances are similar to pulling an inside straight. I can't imagine traders are placing big bets based on such poor odds. Historically, when the incumbent wins, markets gain over the next two months. I believe the market is anticipating such an outcome with some certainty today.
If your explanation is correct, then a Romney loss should be followed by a good sized sell-off.
Untraceable funds given by anonymous donors have been given the name "dark money." These donor groups have been able to exploit gaps between election authorities and the IRS, enabling millions of anonymous dollars to be spent on political campaigns.
The 2012 presidential campaign has seen spending by outside groups on political ads reach an unprecedented level, much of it on political ads, the most vicious of which are often funded by so-called dark money: untraceable funds given by anonymous donors. Unlike super PACs, the groups receiving the bulk of that cash, so-called "social welfare nonprofits," are allowed to keep their donors secret forever.
Well, at least that had been the case until this past Friday, when a Montana judge granted a request by ProPublica and PBS Frontline to release the bank records of one such group, the Western Tradition Partnership, on the grounds that citizens have a right to know where the campaign cash was coming from.
ProPublica and PBS did the heavy lifting, so we'll what that means:
"It was the first time that a court has ordered a modern dark money group's donors to be made public, firing a warning shot to similar organizations engaged in politics."
This guy has to come up with some new kinda spin everyday he works just to put this column out!
The market is rigged!Just look at the Libor Scandel to figure it out. Oh thats right, they dont like to about the real issues on here!You see nothing on the Libor Scandal in our media!Bankers are getting busted in Europe right now but I wish it was here too.Our government needs replacing with term limits set for all!!!
Now that the election is over, and life goes on, institutional and retail investors must align or in some cases re-align their portfolios.
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