By Barbara Kollmeyer, MarketWatch
What will news of no charges for Clinton do for her at the polls?
A monster rally looked on the cards for U.S. stock investors on Monday, inspired by news the Federal Bureau of Investigation won't be pursuing charges against Democratic nominee Hillary Clinton. But analysts were quick to warn that gains may be fragile.
After nine straight sessions of losses -- the longest losing streak in more than 30 years -- the S&P 500 was set to rebound spectacularly (http://www.marketwatch.com/story/dow-futures-jump-230-points-after-fbi-says-no-charges-for-clinton-2016-11-07). Futures showed the index could be in for a 1.4% pop higher at the open. It was a similar story for Dow industrials futures,up around 230 points, while Nasdaq-100 index futures were up 1.6%.
The FBI announced Sunday that it won't be pursuing charges against Clinton after reviewing a recently discovered batch of emails. That review had triggered a tense few days for the Democratic campaign and by some accounts, cost her gains at the polls (http://www.marketwatch.com/story/do-trumps-rising-poll-numbers-mean-you-should-sell-stocks-2016-11-03) over her Republican rival Donald Trump.
Read:These 5 charts show the global relief rally after FBI clears Clinton -- again (http://www.marketwatch.com/story/these-4-charts-show-the-global-relief-rally-after-fbi-clears-clinton-again-2016-11-07)
Strategists have been warning about market volatility in the run-up to the election, and Monday's action pretty much fits the bill. But analysts were quick to preach caution about banking on a sure-thing victory for Clinton, perceived as a more positive presidential outcome for financial markets. The central concern?
"The big question is whether this announcement will have a material effect upon the outcome of the U.S. election, which is clearly perceived to be the case according to today's market reaction," Joshua Mahony, market analyst at IG, told clients.
But until the election is decided, there will be no escaping the presidential-race tension in markets, he said.
Mahony also noted that markets learned from Brexit (http://www.marketwatch.com/story/brexit-ruling-5-things-you-need-to-know-2016-11-03) that it's unwise to be "complacent when there is a vote against a campaign which appeals to the disaffected and marginalized section of a population."
Sven Henrich, a technical chartist known as Northman Trader, said U.S. stocks have been looking oversold, so a rebound was expected. "It is what happens after the elections (as markets work off oversold conditions and test recent broken levels) that will determine if any rally is sustainable," he said.
"A number of major indexes have broken key trend lines and that is a big red flag," Henrich said. As he pointed out in a separate article for MarketWatch (http://www.marketwatch.com/story/why-this-bull-market-is-really-a-myth-2016-11-04), broader markets have been failing to make new highs and the recent pull lower has "caused further technical damage by breaking key support and trend lines to the downside."
Not a great jumping-in point
Peter Garnry, head of equity strategy at Saxo Bank, said the FBI announcement has removed some "tail risk" for Clinton's campaign, and clearly the market is pricing in a higher probability of her busting ahead at the polls. But that doesn't mean jump in right here.
"We are getting to levels now that have equal upside/downside no matter the result, so the current levels are not as attractive as last Thursday/Friday, when the attractive contrarian trades were on a Clinton victory," said Garnry in emailed comments.
It's probably a certainty that the FBI news will probably tip some voters in Clinton's direction, "though given the prevalence of early voting in some states, the die to some extent has already been cast," (http://macro-man.blogspot.co.uk/2016/11/countdown-to-armageddon-deferral.html)blogger Macro Man (http://macro-man.blogspot.co.uk/2016/11/countdown-to-armageddon-deferral.html) said in a post on Monday.
Still, the blogger suggests investors get a little more real. "While it would appear virtually axiomatic that the market should enjoy a big relief rally today, how much should we really expect from a possible escape from 'Armageddon?' After all, using the poll outcome results for the SPX suggests that the market only priced a 1 in 3 chance of a Trump victory as of Friday's close," he wrote.
In addition, Macro Man said while the equity market has fallen consistently over the pasttwo weeks, over the entire nine-day losing streak, the S&P 500 has dropped just over 3%. And as he points out in the following chart, that's far less than every other nine-day-plus losing streak since 1932.
Therefore if the market hasn't fallen far on worries about a victory for Trump, it probably shouldn't rally much on hopes of a defeat for the businessman, he argues. Then there's the potential for more U.S. interest rate increases to be factored in, the blogger noted.
Read:Opinion: Terrified of Trump? Here are 7 good things that will happen if he wins (http://www.marketwatch.com/story/seven-good-things-that-will-happen-if-trump-wins-2016-11-04)
"With the market only priced for one-and-a-half hikes by the end of next year, and the bar fairly low for upside inflation surprises relative to the Fed's own forecasts, there remains ample opportunity for policy outcomes that remain less than equity favorable," wrote Macro Man.
(END) DowJones Newswires
November 07, 2016 07:37 ET (12:37 GMT)
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