Sentiment On Wall Street Seems Positive As Investors Return From The Polls

 | Nov 07, 2018 11:30AM ET

(Wednesday Market Open) With Election Day 2018 now in the rear-view mirror and results in line with expectations, it seems that Wall Street may breathe a little easier as one source of recent volatility has been removed.

The elections had arguably created an overhang of uncertainty that added its shadow to other variables such as rising interest rates in the United States, politics in Europe, and U.S.-China trade negotiations and their potential to affect global economic growth.

Those other factors still remain, and perhaps they could cause volatility to continue, but the tension is arguably lessened now that we have election results in hand, instead of just uncertainty about the elections. The CBOE Volatility Index (VIX) began today’s session down about 12%, briefly dipping into the 16-handle for the first time since early October. Lessened expected volatility and moves higher in equity index futures this morning seem to be coming as investors appear pleased that the election results were in line with what the market was expecting.

Going forward, it seems likely that investors could return their focus to the apparent revaluation of equities that helped spark sharp selling last month as Treasury yields rose.

h3 Gridlock Historically Not Bad For Market/h3

Some of the political issues that Wall Street has apparently had its eye on include prescription drug prices, bank regulation, and spending on infrastructure. It remains to be seen whether new legislation touching on these issues will be passed, or if Washington gridlock will keep things from moving forward. Tech companies could do well, as a divided Congress could forestall any attempts by the administration to pursue potential antitrust violations by big tech. But it’s possible that pharmaceutical companies could come under pressure if there is a continued focus on lowering drug prices.

Even if there is gridlock, stocks have historically performed well in split governments. As CNBC reported, the S&P 500 has gained an average of 12 percent under a divided congress with a Republican president.

Volumes were light for trading of stocks on the three main U.S. indices on Tuesday. It seems that investors and traders spent some time out of the office and at the polls, and market participants probably didn’t want to put on any big new positions in case the elections resulted in a big surprise.

Light volumes can exacerbate moves either to the upside or downside. So it’s notable that the sentiment was positive on Tuesday, with all of the S&P 500’s 11 sectors ending in the green. While it remains to be seen whether the market has put in a bottom after recent selling, the bias to the upside on a relatively quiet day seems to be encouraging.

h3 Oil’s Slide/h3
Get The News You Want
Read market moving news with a personalized feed of stocks you care about.
Get The App

Even the energy sector, which was the worst performer of the day, managed a gain despite pressure on oil prices.

The Trump administration’s waivers exempting some buyers of Iranian oil from sanctions seem to have eased tensions that had previously lifted oil prices. There also seem to be concerns about a potential easing of global economic growth denting oil demand.

Crude prices have seen a bounce this morning, but in the longer term, if the trade dispute between the United States and China does meaningfully curtail global economic growth, that could mean lower demand for oil.