Markets are sharply higher ahead of tonight’s election results, with the Dow Industrials leading the charge, currently up 1.2 percent on the day. Technology is the relative laggard, with Google (GOOG) and Apple (AAPL) both red on the day. Around 11:30 today, there was a large buy that spiked markets to their highs of the day, and we’ve since drifted sideways. Correlations appear to have returned to a “risk on” or “risk off” basis, as commodities are sharply higher with equities today, while bonds are currently trading near their lows of the day.
Much of today’s rally could be attributed to an Obama victory being priced into the market. Popular online sites such as Intrade and online sportsbooks now have The President’s odds of re-election somewhere in the neighborhood of 3:1. Widely viewed as the more bearish candidate for the U.S. Dollar, the market’s perception of an increased chance for re-election has led to a sharp selloff in the dollar, and contrarily a spike in the euro. Until further notice and/or a major surprise tonight, this “risk on” environment should persist.
CHART OF THE DAY
KOL – the Market Vectors Coal ETF. A quick look at this, and you’ll see that the 26 level has been kryptonite for it. A major theme into this election was that Romney is very supportive of clean coal initiatives, whereas Obama is very anti-coal and more in favor of clean energy such as wind and solar(as a side note First Solar is up 7% today). What’s intriguing is that even as Romney’s odds of being elected have waned, coal remains very strong. While it’s tough to short such a hated sector with heavy short interest across the board, an Obama victory could allow a nice short entry in coal names, where you have limited risk at current levels with a good deal of potential reward. Keep a close eye on this chart and how it acts around this level tomorrow. There exists the potential for a great deal of noise, so be sure to allow yourself some cushion should things get volatile.
WHAT I’M EXPECTING
Primarily, an Obama victory, and continued upside for equities. Markets like “winners,” and a clear-cut victory for the Democrats tonight should spark a new wave of buying. Additionally, this could be a catalyst for a strong bond selloff. Should the results be delayed as a result of the numbers being close, be very careful. During the 2000 Bush/Gore election and the recount that took place in the following weeks, markets sold off sharply(about 8 percent) in a matter of ten trading days. Markets hate uncertainty, and anything clouding the results could cause some selling.