November 6 2024: Aftermath of a Republican Election Sweep

Good morning. Yesterday's election results are in, although still preliminary and subject to change depending on vote by mail, provisional ballots, and slow counties and states that rely on manual processes and procedures. There are always the 0% to 5% of votes that take time to tabulate...so election results are not finalized the next day.

However, the news is projecting a stronger showing for Republicans in the U.S. House and Senate, and a win in the White House.

CNN.COM Online Headline November 6, 2024: 08:43 ET

What are the U.S. Financial markets saying to us and where should we make changes to our portfolios?

Currencies and crypto currencies are moving however not all in the same direction. Bitcoin is up to $74,000, which is stronger relative to the US Dollar.

The EURO and Japanese Yen are both trading lower against the US Dollar (US Dollar is stronger). The Euro is trading at $1.071. In fact, the US Dollar is stronger against all major 'Allied Country' currencies. This is most likely a factor of US Interest Rates surging higher today.

Risk is lower as priced in the market with the VIX. The risk metric went from a 21 handle to a 15 handle, and is 23% lower in early trading. This reduction in the price of risk is material and significant. (commentary: it is like the market took a deep breath and a big sigh of relief)

Interest rates are higher across the board. The UST 10-year note is up 17 basis points to 4.459%. If this holds, money will flow into longer-duration bonds and any banks holding US Treasury notes or bonds will hold even greater unrealized losses on their 'low risk' investment portfolios.

​As is likely obvious by now, US stock markets are all trading higher. Dow is up 3%, Nasdaq 2%, S&P 500 2% and the Russell 2000 is up 4.7%. These are significant gains in the first 7 minutes of trading.

Commodities are almost universally lower in price, except Orange Juice, Natural Gas and Rough Rice. Oil and gasoline are significantly lower, along with metals, grains, softw, etc. 
 

We have a hunch that the defense contractor stocks will be down today. Why? President Trump does not believe in maintaining wars 'for war's sake.' It is believed that President-Elect President Trump will move quickly and decisively to end the fighting in the world, and well before his January inauguration. (commentary: world peace is a large benefit of a Trump win.)

As of now, that trade is not working. Defense Contractors are up across the board, with a few exceptions. 

Key domestic manufacturers are up today. Think large product manufacturers.

Residential Real Estate is not having a good morning. That sector is down (although not all companies are trading lower). The services sector is up, but the brokers, information providers, and home builders are all lower on higher interest rates.

U.S. based energy producers are higher this morning. Large, diversified foreign producers are lower (think Shell, Total and BP).

Gold, Silver and Platinum are all lower (the USA is safer with a Republican election victory).

We notice that specific names in the consumer products and retail sector are lower. Dollar Tree (huge exposure to import tariffs) is down, but so is Coke and Pepsi, Home Depot, Procter and Gamble.

Drug stocks are mostly lower, as well as hospitals. Pharmaceuticals, biotech and generally healthcare with hospitals are significantly lower. However, CVS is screaming higher. 

In summary, a Republican election victory has had a significant impact on financial markets.

1. Interest rates are universally and significantly higher, as is the US Dollar.
2. Stocks are up, especially in small-cap names. Not all stocks are up, there are definite winners and losers that stand out.
3. Market measures of risk are lower. Crypto is higher, VIX is lower, and precious metals are lower.
4. Commodities are lower.
5. Interest-rate sensitive sectors are lower (e.g., residential real estate)
6. Defense stocks are higher.
​7. Retail is lower (especially dollar stores).
8. Pharmaceutical companies and hospital owners are significantly lower.
9. Domestic manufacturers and Domestic oil and gas exploration and production companies are higher.

One caveat. We have a long position in Walgreens. Their stock is up, but not by much (around 1%) because they have retail exposure, exposure to tariffs, and exposure to longer-term interest rates via their debt and interest payments. There is something going on with pharmaceutical developers and manufacturers being lower (maybe some margin compression expected), but not sure why CVS is 11% higher (PBM and health insurer, in-store clinics, and pharmacy) and Walgreens is only 1% higher.