You know how they say "phew" in French? They say "phew."
Collectively, there has been a big sigh of relief in global markets this morning after the first round of balloting in the French presidential election avoided the worst-case scenario of a Le Pen - Melenchon run off. Instead it will be the centrist candidate Emmanuel Macron and the far-right candidate Marine Le Pen in the run off.
It's not the ideal outcome. That would have been Macron versus Fillon. Still, Macron versus Le Pen qualifies as a good outcome since exit polls suggest Monsieur Macron should win comfortably in the second round of balloting on May 7 against the anti-EU candidate Madame Le Pen.
That expectation and the belief that Macron's standing takes the "Frexit" and EU disintegration ideas off the table has generated a relied trade that is readily apparent at this juncture in capital markets.
France's CAC 40 is up 4.6%; the 10-yr spread between the French OAT and German bund has narrowed by 17 basis points; the euro is up 1.2% against the dollar; gold prices are down 1.6% to $1268.70/ troy oz.; and the S&P futures are up 25 points, leaving them 1.2% above fair value.
The S&P 500, then, is poised to start today's session on a distinctly positive note that will carry the index up and above its 50-day simple moving average, which has pivoted in recent weeks from an area of key support to an area of key resistance.
What traders will be watching is the character of the market after the reflex move higher at the start of today's action.
To be sure, they can be comforted that the worst-case scenario is off the table with respect to the French election, yet there are still a number of loose ends out there. For one, the strong showing from opposition candidates in the French election implies it won't be a governing cake-walk for Monsieur Macron should he win the presidency.
Separately, North Korea is still a hot spot; the prospect of a government shutdown in the U.S. still lurks with the White House's border wall funding demand standing as a real divide; China is working to clamp down financial system risk with stepped-up regulatory efforts; and the matter of tax reform remains a serious matter for the stock market.
Press reports indicate an outline of the Trump Administration's tax plan will be presented on Wednesday, but that the fullness of the plan might not be known until June. One mustn't forget either that the administration's plan isn't necessarily "the plan," as the House and Senate are going to have their say on tax matters, too.
In brief, one can embrace the notion that a tax reform plan of some kind is still on this year's playing field, although the goal posts keep getting moved further down the field.
That big picture thought will continue to hang over the market, but for now, it is clear the market is exhibiting some political joie de vie on the other side of the French election.
Other factors providing some support include Becton Dickinson's (BDX) $24 billion cash-and-stock offer to acquire C.R. Bard (BCR), Hasbro's (HAS) better-than-expected first quarter earnings report, and an expectation that the financial sector will be exhibiting some early strength on the back of a favorable mention in this week's Barron's.
There isn't any economic data of note today out of the U.S., yet Germany's Ifo Business Climate Report checked in at 112.9 for April, which is its highest reading since July 2011.
The tone is good, therefore, ahead of today's open, which is why it is all the more important that it holds. With the drivers in place for a relief rally today, it would be a real disappointment and a red flag for the bulls if it did not hold.