For better or worse, the election uncertainty will be over a few short hours from now.

Market Statistics

However, just knowing who has won the election is just the start of the next phase in the market's volatility. The average market move on the day after an election is 1.5% but the initial direction in inaccurate about half of the time. Twelve months later the market has moved in the opposite direction less than 50% of the time.

For instance, in 2008 the S&P fell -5% after Obama beat McCain but the S&P was up 12% twelve months later. In 2012 the S&P fell -3.6% the day after the vote but wa sup 25% twelve months later.

According to Bloomberg, in the 22 elections dating back to 1928, the S&P has declined 15 times the day after the vote for an average loss of -1.8%. In nine of those instances the S&P was up 12 months later.

Since 1928, the median gain after a republican winner has been 27.3% while the democratic presidents presided over a 27.7% gain.

On Monday the market took the FBI headlines as an all clear signal for Clinton and indications she would win the presidency on Tuesday. The market has wanted a Clinton win as long as the house and senate remain under republican control. That would guarantee gridlock for the next two years with no sweeping changes regardless of the campaign promises.

Clinton is said to have a 2% to 4% lead depending on which poll you are watching. Trump has been surging but it may be too late for a last minute comeback.

However, as we saw with the Brexit vote, polls cannot be trusted. The remain camp was reportedly up 5% in the polls ahead of the vote. The markets went crazy and posted a huge rally the day before the vote. When the Brexit camp won the election, the S&P crashed -123 points over the next two days before rebounding to new highs in the month that followed.

When polls suggest a candidate is well ahead that tends to depress voters for that candidate. They will decide it is not worth the time and effort to go to the polls and stand in line to vote because their candidate is going to win anyway.

Voting does count. The decision between Bush and Gore came down to a 537 vote win in Florida. Out of more than 120 million votes cast, the deciding factor was those 537 votes.

In the 1980 election between Carter and Reagan the polls had Carter up by 2% for most of October. Some private polls had Reagan up 2% but they were private. When Reagan won by 10% it was a landslide victory and completely unexpected.

The 2012 Obama vs Romney election was "too close to call" with Obama holding a 0.2% lead at 47.4% to Romney's 47.2% on the weekend before the vote. Obama won with 54% of the vote and 332 electoral votes to Romney's 206. The polls were wrong by more than 5%.

About the only thing we can predict on Tuesday evening is that the rest of the week will see a major market move and the direction could change more than once. Given the gains over the last two days, a Clinton victory is already priced into some extent. That suggests an actual victory could produce muted results. If the republicans hold the Senate, the rally could be stronger because of the gridlock factor.

There were two economic reports today and neither had any impact on the market. The NFIB Small Business Survey for October saw the headline number rise from 94.1 to 94.9 and a decent gain. That is the highest number since last December. The internal components were mostly flat. However, those expecting the economy to improve fell from zero to -7 and future sales expectations declined from 4 to 1. Only 10% of respondents planned to expand employment. Respondents expressed concerns over policy uncertainty that would impact hiring and expansion plans.

The Job Openings and Labor Turnover Survey (JOLTS) showed that job openings rose +3.7% to 5.486 million but actual hiring declined from 5.3 million to 5.1 million. Separations also slowed suggesting stability in the labor market. There were only 1,474 layoff announcements in September and a cyclical low at 1.0%. This was a 20% decline from the same period in 2015. Overall, the report was positive but it was ignored.

The economic calendar for the rest of the week is devoid of any material events. The market will be moving on the impact of the election rather than economic news.

In the earnings news, Hertz (HTZ) reported earnings of only $1.58 compared to estimates for $2.73. Revenue was $2.54 billion and missed estimates for $2.6 billion. The company said it had mispriced its cars and had failed to depreciate them sufficiently before reselling them in the used market. They slashed their full year forecast from $2.75-$3.50 per share to only 51-88 cents per share. The bad news crushed Hertz shares from $36 to $17 but the stock rebounded $10 to $27.69 on rumors Carl Icahn was buying the dip in volume. Icahn has owned the stock since it was nearly $100 in 2014. It was not a good day for Carl.

CVS Health (CVS) saw its shares fall -12% after reporting earnings of $1.64 that beat estimates for $1.57. Revenue of $44.6 billion missed the estimates for $45.3 billion. Same store sales rose +2.3%. The bad news came in the form of lowered guidance. The company narrowed full year guidance from $5.77-$5.83 to $5.81-$5.89. They guided for 2017 to $5.77-$5.93 and warned they would love 40 million prescriptions because of deals Walgreens (WBA) had lured away. The company did approve a new share buyback of up to $15 billion.

Valeant Pharmaceuticals (VRX) reported earnings of $1.55 compared to estimates for $1.73. Revenue declined -11% to $2.48 billion also missing estimates for $2.49 billion. Guidance was even worse. The company said full year revenue is now expected to be $9.55 to $9.65 billion, down from $9.9-$10.1 billion previously. The adjusted earnings forecast was cut from $6.60-$7.00 to $5.30-$5.50 per share. Adding to the gloom, the CFO warned, "There could still be some surprises yet to be discovered." This was his first earnings call since joining the company and he did not sound too optimistic. The company noted declining sales at some it its key prescription businesses and a bleak outlook for the generic unit. Valeant is expected o sell the Salix unit in the near future for somewhere in the $10 billion range. They paid $14.4 billion for the company in 2015. Valeant has $31 billion in long-term debt and billions in other payments that were previously committed.

Trip Advisor (TRIP) reported earnings of 53 cents that beat estimates for 52 cents. Revenue rose only 1.4% to $421 million and missed estimates for $436.3 million. Revenue from hotels fell -5.9% to $320 million. That was 76% of the company's revenue for the quarter. Transaction revenue fell -9.6%. The company blamed fewer referrals to third-party hotel websites. Shares fell from $63 to $54 in afterhours.

Clearly the reason Trip Advisor had poor earnings, was the strong performance from Priceline (PCLN). The company reported earnings after the bell on Monday and shares rocketed higher. The company reported earnings of $31.18 per share compared to estimates for $29.92. Revenue of $3.69 billion beat estimates for $3.62 billion. They credited higher hotel bookings for the earnings beat.

Wayfair (W) reported a loss of 54 cents, compared to estimates for a loss of 59 cents. Revenue rose 45% to $861.53 million and beat estimates for $845.9 million. However, they guided for Q4 revenue of $920-$960 million that missed estimates for $1.03 billion. Shares fell from $34 to $27.60 on the report but rebounded to close at $32.28.

The earnings calendar for Wednesday is also lackluster. We are moving into the latter part of the week where retail stocks report with Macy's, Container Store, Nordstrom's, Kohl's, Ralph Lauren, Michael Kors and JC Penny's.

Nvidia is the last highlight for the week as the company reports on its ever growing inventory of leading edge products.

After the bell, the API inventory report for crude showed another large build of 4.4 million barrels after the record 14.4 million barrel gain last week. Gasoline inventories rose 3.6 million barrels and distillates declined -4.3 million barrels as homeowners loaded up on heating oil. Crude oil was only down 21 cents for the day and another 8 cents after the API report.


The market direction for the rest of the week is totally dependent on the election results. The various sectors impacted by a Clinton or Trump victory will be in play and some will be up and some down. For instance, healthcare and drugs will be negatively impacted by a Clinton win and energy, aerospace and military will be positively impacted by a Trump win. Until the smoke clears, the markets are likely to remain volatile for the rest of the week.

The S&P rebounded to resistance at 2,145 and then faded in the afternoon. It is poised to either break through that level and then 2,150, which would trigger additional short covering and a retest of 2,165. The S&P has multiple resistance levels that will be a challenge but once portfolio managers know what to buy the market should go up.

Support is now well below at 2,120 and 2,085 after last week's decline. I seriously doubt we will dip below 2,085 because of the cash on the sidelines waiting for a dip.

The Dow rallied to strong resistance at 18,335 and 18,400 and came to a dead stop at that resistance. The Dow was in short squeeze mode and most of the gains were made at the open with the index fading in the afternoon. Support is well back at 17,900 with speed bumps at 18,100 and 18,000 along the way.

The Nasdaq is now fighting resistance at 5,200. This level was support for three months and should now be strong resistance. There are no major earnings reports that could move the market on Wednesday. The Nvidia earnings on Thursday could energize the chip sector but all the big name leaders have already reported.

The S&P futures have been all over the map tonight. They spiked to +7 when the first early voting returns began to appear, then dipped into negative territory an hour later as those returns did not go as traders were expecting. They are back to +4 as I type this.

However, regardless of the winner, the market is likely to make a major move over the next two days. Unfortunately, the primary direction is unknown and it is likely to see moves in both directions. I reported on the Bloomberg research at the top of this commentary that the average decline the day after a vote was -1.8% with two days declines not unusual. The most common result is volatility where the market goes in both directions at a high rate of speed for a couple days before it picks a final direction.

Sit back and relax and be prepared to buy any dip.

Enter passively, exit aggressively!

Jim Brown

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