Quite remarkably, stocks are making a strong move to the upside, with the Dow Jones Industrial Average gaining over 130 points, or one percent. While it is difficult to pinpoint the main driver of stocks given the lack of economic data out today, one has to conclude that it is elections related. But is the market telling us who will win?
While most will agree that a Romney win will be better for equities, the word on the Street is that stocks are poised to continue to climb no matter who wins as the economic backdrop is showing strong signs of stability. In reference to the dreaded fiscal cliff, no matter who wins, no one will be that deranged to allow the economy to plunge into the abyss. Sure, if the elections are tight we can expect to see lots of resistance from the losing party, but still no one will be that suicidal to put the economy at risk.
Over in Greece, hundreds of thousands of Greeks are bringing the city of Athens to a standstill as they strike to protest against a new round of wage and pension cuts that the Greek parliament is expected to approve by a narrow margin. The final vote on structural reform will take place tomorrow, and it is crucial that it gets approved in order to ensure that European Union and International Monetary Fund lenders release more than 31 billion euros of aid, much of it aimed at keeping banks from failing. The Greek government has promised that these will be the last cuts to public spending and asked Greeks to endure this as it is needed to prevent the nation from sinking into bankruptcy; however, the Greek government does not hold a good track record as it has made similar promises in the past, only to break them later, so the Greek public rages on. If the Greek government fails to approve this austerity plan, default will be likely, and the Stability of the euro zone will once again be at risk.
At the moment, stocks continue to hold strongly, as we all wait to see the final elections results. The vote in Greece tomorrow should also be in focus as it will determine the stability of the euro zone, but we expect the austerity measures to go through as we do not believe bankruptcy is an option.
So much for that jitteriness before the election, stocks are up big today. And if you were looking to the market to give you a sense of where the election was going to land, both Romney and Obama stocks are on fire. Defense stocks are among the biggest winners, while solar is also up. Energy companies are on the rise, as oil bounced back. Other commodities are strong as well, namely gold and silver. Great line in an AP article this afternoon, "More than anything, analysts say, investors want the election behind them. The certainty of a winner will allow Wall Street and Congress to focus on the so-called fiscal cliff, tax increases and government spending cuts that take could affect Jan. 1." AMEN!
On a separate note, politicians are already positioning themselves for the post-election craziness. The Speaker of the House made a statement a few years back that he would do everything he can to make sure that the President wasn't re-elected, that just happens to include stalemating Congress and basically accomplishing nothing over the past two years. We are still going to have a huge deficit when this election is over, and it doesn't matter which candidate lists his address at 1600 Pennsylvania Avenue, it will be up to Congress to get their act together and help fix this country. All this squabbling between the parties has done nothing but divide this nation. It is a pipe dream to believe that once this election is over, that those lines will disappear, but they need to at least fade.
Pundits Predict Obama, Market Indicating Romney?
Alright, so if you believe the polls, this presidential race is pretty tight, in fact they suggest this election could come down to the wire tonight. The thing is, the polls represent popular opinion while of course the Electoral College can skew things in a different direction as we saw in 2004. Ahead of the voting results today, there seems to be a broad consensus that Obama has this election wrapped up as he seems to have an edge in swing states, particularly Ohio, even if Romney perhaps does have a very good shot at the popular vote. In fact, the President's re-election odds look to have really picked up steam in the past few days; Intrade currently has a 72% chance of him winning.
Looking at the stock action today though, I'm not seeing a market reflective of an Obama win. In fact, some of the trading action looks distinctly Romney. Coal for instance is catching a strong break today including the likes of Peabody (BTU +2.7%), Arch Coal (ACI +4.6%), Westmoreland Coal (WLB +4.6%) and Alpha Natural Resources (ANR 3.5%). We saw similar action after that first debate that Romney ran away with; obviously coal is a loser under Obama given that new coal pants are virtually illegal now under his reign, along with tighter environmental restrictions.
There's clear strength in defense-related stocks too, including Raytheon (RTN +2.5%) TransDigm (TDG +2.4%), Northrup Grumman (NOC +2.3%), L-3 (LLL +2.1%), Kaman (KAMN +2.0%) and Boeing (BA +2.1%). Again, Romney is clearly in support of higher military spending versus the President's inclination to cut back.
Taking a look over at hospitals, the action here also follows along with the Romney theme. There's notable selling in the likes of HCA (HCA -4.3%), Tenet Healthcare (THC -4.4%) and LifePoint (LPNT -2.5%). Throughout the campaign, hospitals have been seen as a loser under Romney given that Obamacare theoretically increases traffic given that more people have insurance coverage.
Perhaps it could be a coincidence, but the moves in these sectors are decisive and there isn't a wealth of other news to drive them. But that raises the question of why the broad market would move contrary to what is a seemingly growing consensus among the pundits that Obama has the edge. We should note that there is also strength in solar today, which would be an Obama sector.