U.S. equities surged to the best one-day gain in eight months on Monday after the FBI announced on Sunday that its review of new emails related to Democratic presidential candidate Hillary Clinton’s private email server had concluded without any meaningful findings.
FBI director James Comey, in a letter to Congress, said his findings from July stood: That he didn’t recommend prosecutorial action, but admitted Clinton’s actions were extremely careless. Since Clinton is the “status quo” choice, stocks and other risky assets surged in a massive relief rebound, ending a nine-day losing streak as traders eagerly await the end of the long U.S. presidential election tomorrow.
In the end, the Dow Jones Industrial Average gained 2.1%, the S&P 500 added 2.2%, the Nasdaq Composite wafted up 2.4% and the Russell 2000 finished the day 2.5% higher.
Treasury bonds were weaker as the haven bid faded, boosting the ProShares UltraShort Treasury Bond (NYSEARCA:TBT) recommended to Edge subscribers to a gain of 10.1% since recommended on Aug. 16. The dollar strengthened, gold lost 1.9% and crude oil gained 1.9%.
Financials led the way with a 2.6% gain, ostensibly on net interest margin hopes. Industrials gained 2.4%. And healthcare rose 2.4%. Telecoms were the laggards, up only 0.9%. Peer-to-peer financier LendingClub Corp (NYSE:LC) gained 15.2% thanks to a Q3 earnings and revenue beat, with sales 10% ahead of expectations and guidance strong. Biogen Inc (NASDAQ:BIIB) gained 6.7% on new Spinraza, a treatment for spinal muscular atrophy, met primary endpoint goals in a Phase 3 study.
On the downside, the bad news continued for GoPro Inc (NASDAQ:GPRO), which fell another 4.7% after being downgraded by analysts at Bank of America Merrill Lynch on concerns the company won’t be able to fully capitalize on the launch of new products — including the Karma drone and Hero5 cameras — heading into the holiday shopping season.
There was some chatter from Federal Reserve officials, with vice-chair Stanley Fischer reiterating the hawkish case for a near-term rate hike, citing a “powerful” labor market. Atlanta Fed president Dennis Lockhart said there was a “relatively high bar” to not raising rates before the end of the year.
Heading into Election Day, the outcome is on a knife’s edge, despite polling showing a two-to-one advantage for Hillary. Trump has closed in or taken the lead in several critical states for his Electoral Map strategy, including New Hampshire, Florida, and Nevada. Early turnaround numbers suggest the GOP has a turnout/enthusiasm advantage as well.
Market history suggests trading on Election Day itself tends to be relatively subdued. Like the recent Brexit experience in June, this feels very much like a binary decision for the market: Continued volatility and equity weakness if Trump surprises or a powerful relief rally if Hillary pulls it out.
One thing to consider is that a Hillary win, while likely good for stocks overall (given her support of Fed Board Chair Janet Yellen vs. Trump’s criticism of her aggressive cheap money stimulus), would be bad news for a large swath of the market in areas such as healthcare, biotech and energy on fears over increased regulation.
A third possibility, noted by Societe Generale analysts in a note to clients today, would be a 2000-style recount that would keep this electoral nightmare going. They believe the CBOE Volatility Index would remain in the 25% to 30% range until the victor is announced, boosting safe havens like Treasury bonds, the Japanese yen and gold.
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