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  • It was a wild night in America on Tuesday

  • with big swings in the vote tallies in big states.

  • The atmosphere of excitement and uncertainty

  • is captured nicely in the roller coaster in Nasdaq index futures

  • as the evening wore on.

  • The ride remains wild on Wednesday

  • with both candidates seeing a path to election

  • as the final votes are tallied.

  • The outcome is going to depend on absentee ballots cast

  • in just a few swing states, such as Pennsylvania.

  • But just because the presidency still hangs in the balance

  • it does not mean that we have not learned anything at all.

  • One thing is becoming increasingly clear.

  • The Democrats' hopes of adding to their majority in the House

  • of Representatives and flipping the Senate

  • look likely to be dashed.

  • This means that the most popular market narrative leading up

  • to this election is not going to play out.

  • This was the so-called 'blue wave' reflation trade.

  • The story went like this.

  • With Democratic control of all three branches of government

  • there would be huge fiscal spending, higher inflation,

  • higher interest rates, and finally higher stocks.

  • But despite the 'blue wave' scenario not playing out,

  • stocks rose nicely on Wednesday morning.

  • Was the reflation trade narrative just a convenient

  • post hoc justification for a market that

  • was determined to rise anyway?

  • Perhaps not.

  • If you look at 10-year Treasury yields on Wednesday morning,

  • they did fall just as the failure of the 'blue wave'

  • scenario would have predicted beforehand.

  • As a result, cyclical stocks and most prominently banks,

  • the most cyclical of all, are getting hammered,

  • which is exactly what the failure of the 'blue wave'

  • thesis would have predicted beforehand.

  • So why then is the market as a whole doing so well?

  • Well, look at who is leading the market up.

  • It's technology and specifically the biggest tech stocks.

  • Once again, the so-called FANG stocks

  • are leading the market, which is a return to the status

  • quo of the last few years.

  • And given a very mixed election result, what else would you

  • expect?

  • Some days, even when the world is going mad,

  • markets make good sense.


It was a wild night in America on Tuesday

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B2 US market wave cyclical wednesday morning wednesday election

How markets are reacting to early results

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    洪子雯 posted on 2020/11/05
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