Peruzzi’s Perch 11.04.16 – Equities Market Week In Review & Ahead: It’s All About The Presidential Election
The complexion of the U.S markets changed dramatically this week when the FBI reopened the Clinton email investigation. James Comey did what the Fed, earnings, oil and economic data was unable to do; his self-described “focus on full transparency” caused market volatility to spike, evident by the 42% rise in the VIX index. Make no mistake about it, this market is squarely being controlled by Tuesday U.S Presidential election. We did have numerous noteworthy items this week…
A decent October jobs report when looked at coupled with September’s +35K revision, gains in nonfarm productivity, some growth in ISM manufacturing, and dovish personal income and spending data. We also saw weakness in Oil with Wednesday’s U.S inventory and OPEC production data pushing WTI back below $44 a barrel and down 9% for the week. Bank of England voted 9-0 to keep rates unchanged and Egypt devalued and raised rates by 300 bps. Q3 earnings are wrapping up and looked decent overall.
All these items would normally be a bigger deal but all were relegated to the back seat with Mr. Comey’s actions dramatically tighten the Presidential race (Clinton 12 point lead down to 3 points). The coming election is solely in the driver’s seat. Residents of battleground states of New Hampshire, Ohio, North Carolina, Pennsylvania, Florida, Colorado and Arizona can expect a large amount of political bombardment this weekend. The Presidency and control of the senate is at stake in these crucial 7 states. Mexico reportedly was making contingency plans in case of a Donald Trump victory. It will be and interesting weekend to say the least. Markets saw a fair amount of hedging and speculative trading activity this week as investor’s distain for uncertainty grows. As of Friday U.S markets were battling in an attempt to break an 8 day losing streak. A 9th down day for the S&P 500 index would mark the longest losing streak in 36 years and European stocks hit oversold levels on Friday.
Looking ahead to next week, it will be the Election on Tuesday and the results analysis on Wednesday that will dictate our direction and short term future. Earnings highlights next week (only 31 S&P 500 names reporting) are Rockwell on Monday, DR Horton and CVS on Tuesday, Viacom on Wednesday and Macy’s, Nordstrom and Kohl’s on Thursday. Biggest economic data point will be Friday’s University of Michigan sentiment data, and I expect it will be largely dismissed as the control of Congress and the White House will make next month’s sentiment data more meaningful. Fundamental analysts will be happy to get back to work latter in the week after macro and micro data points come back into focus.
Fed governors have been quiet lately, but their pointing to coming rate hikes have been heard as Fed Fund Implied Probability is pricing in a 74% chance of a December 14 rate hike of 25 bps. Chicago President Evans speaks on the Economy and Policy in NYC on Tuesday and I’d expect he minces his words carefully. Fed’s Williams speak on Wednesday, Bullard on Thursday and Fischer on Friday. We might see the gloves come off with some interesting and insightful comments coming out after the election. Although most of the country is experiencing mild temperatures, November does tell us colder weather is coming. So, as refiners switch over to heating oil, crude will be in focus next week. Traders will be looking for production levels out of Saudi Arabia and Russia, refining capacity and any news from OPEC that might signal some strength for the commodity but resent production numbers points toward further weakness.
In a nutshell, markets will be looking at higher interest rates soon and a potential shift in power in Washington. Cash looks to be King until these story lines play out. Remember to vote but please only vote once so we can get this behind us.
Managing Director International Trading
Mischler Financial Group
Investment Banking | Institutional Brokerage
Larry Peruzzi is a 20 yr global trading markets veteran and brings to Mischler a unique background. His career experience and best execution perspective stems from his sitting on ‘both sides of the aisle.’ For more than half of Larry’s career, he ran buy-side trading desks for Standish Mellon and thereafter, The Boston Company. In both of those roles, Larry was responsible for implementing and managing international equities trade execution. Larry’s perspectives are frequently cited by the leading financial news publishers, including The Wall Street Journal, Bloomberg LP and Reuters.
Above is the opening extract from Mischler End of Week Equities Market Commentary via Peruzzi’s Perch November 4, 2016 edition distributed via email to institutional investment managers and Fortune Treasury clients of Mischler Financial Group, the investment industry’s oldest and largest minority broker-dealer owned and operated by Service-Disabled Veterans.
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