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Briefing.com Summary:
*The Democrats won majority control of the House and Senate.
*There is a sense of relief that the overall election results won't be contested.
*Questions remain about the implications of the election outcome for the AI trade.
The midterm election is almost over (some races have yet to be decided), but for all intents and purposes, it is over. The Democrats won majority control of the House and Senate, with projections showing they will hold at least 54 seats in the Senate and at least 250 seats in the House when all the races are decided.
The clearest sign the election is over, though, came from President Trump, who congratulated the Democrats on their win and said he looks forward to working with them while also noting he has veto power. Reading between those lines, the market took comfort in the understanding that the overall election result won't be contested.
Currently, the S&P 500 futures are up 82 points and are trading 1.1% above fair value, the Nasdaq 100 futures are up 57 points and are trading 0.2% above fair value, and the Dow Jones Industrial Average futures are up 1,107 points and are trading 2.1% above fair value.
Part of what we are seeing in the equity futures trade, then, is a relief trade.
Other factors working their way into the equity futures market include the idea that the election is a clearing event for a market that had struggled from the uncertainty ahead of it, the idea that gridlock may ultimately be the legacy of this midterm election since the president still holds veto power, and the hope that a bipartisan effort will be made to lower the cost of living.
Geopolitics is also part of the equity futures trade. WTI crude futures are down 1.7% to $94.45/bbl, leaving them down 9.3% for the week, as President Trump reportedly said he has no immediate plans to strike Iran.
The market has embraced the possibility of a diplomatic solution with Iran, wanting desperately to believe in such an outcome but remaining cognizant that it has been disappointed many times over by that hope.
For now, though, it is all lining up nicely for a market that is also spying lower Treasury yields.
The 10-yr note yield is down three basis points to 4.92%, having also digested today's news that the Treasury's quarterly refunding will include a $58 billion 3-yr note, a $42 billion 10-yr note, and a $25 billion 30-yr bond that will raise approximately $28 billion in new cash from private investors.
Separately, the ADP Employment Change report for October showed private-sector employment increased by 86,000 jobs (Briefing.com consensus: 75,000) following a downwardly revised 86,000 (from 90,000) in September, with employers of all sizes hiring. The bulk of the hiring, however, remained in the service-providing sector (82,000).
There wasn't much change in the trade deficit either. The Census Bureau reported that the trade deficit narrowed to $105.0 billion in September (Briefing.com consensus: -$108.4 billion) from a downwardly revised $105.7 billion (from -$105.6 billion) in August. Exports were $5.8 billion more than August exports, and imports were $5.2 billion more than August imports.
The key takeaway from the report is that computers and computer accessories were the big drivers of the increase in both exports and imports.
The stock market, for its part, looks ready to import some nice gains for the major indices when trading begins. The Dow Jones Industrial Average will be the big winner, but ironically, its performance will matter the least for investors since there isn't much money indexed to that price-weighted average. Nonetheless, it always makes for a nice headline to report a big point gain for the Dow.
What matters most is the behavior of the S&P 500 and Nasdaq Composite, which will have to work their way through election results that reportedly weren't on the bullish side of the AI trade. That connection shows up in the softness seen in Advanced Micro Devices (AMD) and Super Micro Computer (SMCI), both of which put up strong results and guidance after yesterday's close and initially traded higher. AMD was up more than 9%, and SMCI was up close to 9.0%.
AMD is down 0.4% now in pre-market trading, while SMCI is up just 0.1%.
In a certain respect, then, the election isn't over, even though the outcome is. The new Congress arrives on January 3.
