by Eli Wright
Election Day is finally here. After Sunday night's FBI announcement that it wouldn't be pressing charges against Hillary Clinton, markets have mostly regained their confidence, although the possibility of a Brexit-style shock remains.
World markets appear to be taking a wait-and-see approach, and were mostly unchanged overnight. The Nikkei dipped 0.03%, to close at 17,171.38; the Shanghai Composite ticked up 0.44% to 3,147.08; and the Hang Seng closed at 22,913, up 0.49% .
In Europe, the FTSE is currently up 0.09% to 6812.3; the DAX has moved up just 0.04% to 10,461; and the Stoxx 50 has gained 0.33%, to 3,014. As US polls open, additional volatility might become a factor, as election results begin to trickle in.
With markets perceiving that Clinton’s chances of a win have increased, the S&P 500 gained yesterday, rising 2.22% to 2,131.52; the Dow climbed 2.08% to 18,259.60; and the NASDAQ gained 2.37% to close at 5,166.17. The S&P 500, Dow, and NASDAQ are all 0.1-0.2% lower in premarket trading. The VIX is currently up 0.48%, to 18.80.
Traders are expecting an approximately 2% stock price swing in either direction tomorrow, once results are publicized. Citigroup is estimating a 3-5% sell-off in the event of a Trump victory.
Forex
The US Dollar Index is down 0.08% at 97.70, but the dollar has mostly steadied against the euro, pound, yen, and the Swiss franc. The Mexican peso is also up, since FX markets appear to believe that Trump’s chances are slim.
Expect volatility at least until after the US election news is behind us; anticipate some temporary movement toward safe-havens including the yen and the Swiss franc.
Commodities
Gold spiked higher last week during the FBI's re-opened investigation, but the precious metal appears to have stabilized. Analysts believe a Clinton victory is now priced in and commodities markets have begun eyeing next year's Eurozone elections. Of course, should Trump do well as the day progresses, gold will likely move higher.
Crude oil saw a slight bump up yesterday, following an earthquake near the Cushing storage facility in Oklahoma, but gains were capped by the rising dollar. It is currently trading up 0.40% at $45.08. Brent is also up, 0.59% to $46.41. OPEC is now claiming that Russia is on board with a deal to limit oil production, but the news hasn't significantly swayed prices; perhaps traders are getting wise to the production-freeze game.
Stocks
Most polls are now showing Clinton as the likely winner which is also the prevailing market sentiment heading into the election. And, since Wall Street has been a big supporter of Mrs. Clinton's campaign, equity markets are also largely optimistic.
Nevertheless, a Clinton victory, especially if the Democrats also take the House, would pose concerns for biotech, insurance, and healthcare stocks. The NASDAQ Biotechnology Index slid 4.4% on September 21 alone, after Clinton tweeted she would lay out a plan to take on “price gouging” in the specialty-drug market. Since then, the Index has fallen 16% in total, to 2634.3. At the same time, the NASDAQ Health Care Index has lost around 14%, and is currently down to 596.9.
Trump’s vision of making America energy independent, creating millions of new jobs, and unleashing $50 trillion in untapped shale, oil, and natural gas reserves, would mean a potential resurgence for US oil and gas companies.
Earnings reports continue today with SeaWorld (NYSE:SEAS) and TripAdvisor (NASDAQ:TRIP), reporting Q3 earnings after the market close.
SeaWorld shares have depreciated by 54% since October, 2013 when the documentary Blackfish was released, and SEAS was criticized for the treatment of orcas as well as employee safety practices. In an effort to salvage the flagship's image, SeaWorld announced this past March that its orca breeding program would close. The company also recently unveiled plans for a “natural habitat” enclosure and tourist experience in its San Diego park. However, SeaWorld has missed earnings expectations in three of the past four quarters, suspended its dividend payments as of October, and it's current P/E ratio is 66.01, significantly above industry norms. As if that weren't enough, the EPS forecast for this afternoon's report is $1.07, a YoY slide of 7%.
TripAdvisor, which owns Travelocity and Orbitz.com, is expected to report Q3 EPS of $0.42 (a YoY drop of 6.7%). Shares are down 41% since June, 2014 on reduced earnings, expectations of a continued global economic slowdown and reduced referral income. TripAdvisor competes with Priceline (NASDAQ:PCLN), Expedia (NASDAQ:EXPE), and as it enters the travel market, Google (NASDAQ:GOOGL) (which should drive up TRIP's future advertising costs since it receives a majority of its traffic from Google search results). Approximately 80% of TripAdvisor’s revenue now comes from hotel bookings, so investors will need to see other means of revenue-generation to justify the company's current P/E ratio of 67.5.