Morning in Arizona

Morning in Arizona

The Headline Animator

Wednesday, November 09, 2016

The Day After

Financial Review

The Day After


DOW + 256 = 18,589
SPX + 23 = 2163
NAS + 57 = 5251
10 Y + .21 = 2.07%
OIL + .41 = 45.39
GOLD + 3.10 = 1279.20

Donald Trump has been elected the 45th president of the United States. Trump defeated former Secretary of State Hillary Clinton by winning key battleground states of Florida, North Carolina, and Ohio – while managing to gain upset victories in several states that were previously considered blue strongholds, such as Pennsylvania and Wisconsin.

Trump racked up a clear majority in the Electoral College, even as Clinton won the popular vote by about 200,000 votes. Still Trump had gathered 290 Electoral votes to 228 for Clinton, and even though Michigan and New Hampshire are still too close to call, the results were conclusive.

Clinton called Trump sometime after 2 a.m. ET to concede the race. Trump declared victory this morning, shortly before 3 a.m., before a large crowd of enthusiastic supporters, pledging to help unite the country. In his victory speech, Trump said he had a great economic plan, would embark on a project to rebuild American infrastructure and would double U.S. economic growth.

President Barack Obama, who campaigned hard for Clinton, congratulated Trump by telephone early today and invited him to a meeting at the White House on Thursday. Clinton delivered her concession speech shortly before noon, pledging to unite behind the president-elect. Trump’s campaign manager, Kellyanne Conway, nonetheless did not rule out the appointment of a special prosecutor to investigate Clinton’s past conduct.

Worried that a Trump victory could cause economic and global uncertainty, investors were in full flight from risky assets. As the realization of a Trump win began to set in, Dow Jones Industrial Average futures dropped more than 800 points; meanwhile, the S&P 500 Index fell more than 100 points, triggering circuit breakers.

Dow futures later recovered some of those losses. At the open the Dow had turned positive, and as the day progressed, we moved into very positive territory. Nearly a 1,100-point swing from the overnight low for futures to the high in trade. I can’t recall a swing like that.

Here’s how trading played out: financials moved higher.  Trump has vowed to reduce financial regulation, and banks are already benefiting. Bank of America gained the most since May.

Steelmakers rose as Trump’s promise to favor American manufacturers led investors to believe that domestic prices for the metal will increase. Nucor gained the most in more than seven years; U.S. Steel climbed more than 20 percent.

Pharmaceutical and biotech stocks were up as Democratic threats of price controls were made moot.

Oil and natural gas drillers benefited because Trump pledged to roll back regulations on fracking and open more federal land to extraction industries.

Coal companies also enjoyed the idea of less regulation and a president-elect who has denied climate change. Arch Coal up 10%. Peabody Energy up 50%.

Lockheed Martin, Northrop Grumman and Raytheon posted the biggest share gains since the financial crisis.  Trump has pledged to increase defense spending.

Private prisons operator Corrections Corp. of America was up as much as 60 percent in intraday trading and the GEO Group climbed as much as 35 percent on speculation that Trump will use existing private lockups to detain immigrants.

US Treasury debt dropped, sending yields on the 10-year Note over 2.07%; the thinking here is that Republicans will boost spending and debt to rev up the economy.

The dollar surged the most since the day after the UK’s vote to leave the European Union, recovering from an overnight selloff. The greenback rallied against most major peers and against emerging-market currencies. The turnaround followed a reversal in 10-year Treasuries. The market-implied probability of a December interest-rate hike by the Federal Reserve, which had fallen to less than 50 percent as results pointed to a Trump triumph, jumped back above 80 percent.

The Mexican peso suffered its biggest drop in more than two decades.

Japan’s Nikkei dropped more than 5%, but remember that Asian trading took place while election results were still uncertain. As trading moved around the globe, European stocks started weak but finished in positive territory.

Sturm Ruger posted the biggest intraday decline in seven years as the Trump win eased concerns of weapons restrictions. Sales have surged, and any discussion of gun control by political leaders can cause shares of gun makers to spike.

Smith & Wesson fell in the biggest intraday drop since April. Nevada, California and Washington all voted in favor of ballot measures to enhance gun control, while Maine narrowly rejected universal background checks for private gun sales.

Renewable energy stocks dropped.

AT&T moved higher but Time Warner slipped. Trump has vowed to block AT&T’s $85.4 billion deal for Time Warner – the largest transaction announced this year – calling it “poison” to democracy.

Shares in Navient, the largest student loan servicer in the US, with more than 12 million debtors, surged more than 20 percent. SLM Corp., better known as Sallie Mae, was up more than 19 percent; no company in America originates more student loans without government backing than Sallie Mae. Both companies’ shares hit 52-week highs.

The American Association for Public Opinion Research announced in a press release that pre-election polls “clearly got it wrong this time,” and a previously established committee of pollsters will examine why the polls underestimated President-elect Donald Trump’s strength nationally and in key states. But don’t expect any clear answers soon.

The basic problem — and the reason pollsters have been nervous about just this sort of large-scale polling failure — comes from the low response rates that have plagued even the best polls since the widespread use of caller ID technology. Caller ID, more than any other single factor, means that fewer Americans pick up the phone when a pollster calls. That means it takes more calls for a poll to reach enough respondents to make a valid sample, but it also means that Americans are screening themselves before they pick up the phone.

And as we have been bombarded by telemarketers, there may be a tendency to spoof. So, even as our ability to analyze data has gotten better and better, thanks to advanced computing and an increase in the amount of data available to analysts, our ability to collect data has gotten worse. And if the inputs are bad, the analysis won’t be any good either. GIGO. Basically, when you try to predict human nature, the results can be very strange.

And while it is hard to imagine a bigger fail than the pollsters, consider the market prognosticators at the big Wall Street trading firms.  Citigroup predicted a 3%-to-5% S&P 500 drop if Trump won. And the bank’s strategists said that drop would happen immediately—like today. Bridgewater Associates—the world’s largest hedge fund—told its clients that if Donald Trump won, the Dow Jones industrial average would plunge 10%, or just over 1,900 points.

Goldman Sachs also predicted a big drop in the stock market. Goldman has a new note out to clients predicting what will happen to the stock market after a Trump victory, which they sent out to clients after Trump’s actual victory. Their new conclusion: Not much.

Goldman said the market is likely to end the year 2% lower than where it started today, just as it predicted before. Today’s 150-point jump: Not something Goldman predicted. It is the role of markets to price risk. And for the most part, today showed how all the bright kids on Wall Street aren’t so bright after all.

Republicans maintained control of the Senate and the House of Representatives. From the beginning of the election cycle, Republicans were on the defensive in the Senate, where they had far more competitive seats in play than the Democrats.

In the House, the Republicans’ largest majority since the 1930s seemed sure to keep the chamber in their control. The final numbers show Republicans taking a 51-47 advantage in the Senate; a 236-191 advantage in the House, and a 33-14 lead among governors.

In Arizona, election officials are still counting about 600,000 votes, but most of the results are apparently determined. Trump beat Clinton and Arizona remained reliably red. The final tally is expected tomorrow morning.

Arizona Senator John McCain won re-election to a sixth term. Maricopa County Sheriff Joe Arpaio was defeated in his bid for a seventh term. Paul Penzone, a Democrat and a former Phoenix police sergeant who lost to Sheriff Arpaio in 2012, won the rematch, 54.9 percent to 45.1 percent, and will be the next sheriff of Maricopa County.

Voters in Arizona, Colorado and Maine approved boosting the minimum wage in their states to $12 per hour (after a series of graduated increases), while the state of Washington approved increasing its minimum wage to $13.50 by 2020. The federal minimum wage remains $7.25, which has not been changed since 2009. In Arizona, the minimum wage will rise to $10 next year, then increase every year until 2020.

Proposition 205 has failed in Arizona, keeping recreational marijuana illegal in the state. California, Massachusetts and Nevada legalized marijuana on Tuesday.

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