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T3’s Take 3: Donald Trump Scores a Huge Victory

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1) President Trump!

Republican Presidential candidate Donald Trump shocked the world by defeating Hillary Clinton in a huge victory.

As we pointed out yesterday, the market was acting as if a Clinton win was a sure thing, with a 1% rally in the Mexican Peso, which has tended to track her poll numbers.

However, the large number of undecided voters and perhaps some quiet Trump supporters skewed the polls.

That’s why we urged traders to not count Trump out until the official tally was in.

2) The Reaction

The Mexican Peso dropped an incredible -8.4% today on Trump’s surprise victory.
And overnight, S&P 500 futures fell so hard they went limit-down, and gold and the VIX skyrocketed as traders ran for cover.

We also saw widespread weakness in overseas markets and a surge in the Japanese yen, which typically happens when traders are fearful.

And biotech rallied huge since Clinton has been openly critical of drug company pricing practices.

3) And the Bounce…

The S&P 500 Index spiked down to 2125.35 at the open, and then a funny thing happened… traders bought the dip.

It was as if traders decided that President Trump wasn’t the worst thing in the world after all.

The S&P grinded up to close at 2163.26, up 1.1% and within striking range of all-time highs.
Why did that happen?

Here’s something to think about: over the past week or so, sentiment grew extremely negative, with the ISE Sentiment Index indicating massive demand for put options.

By this measure, traders were even more bearish than they were at the February bottom.

So even though the polls were indicating a Clinton victory, it looks like traders were still hedging against a potential worst-case scenario.

That means the bad news was priced in, setting the stage for a reversal.

And it certainly helped that Trump

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Global Economic Calendar

1:00am JPY Prelim Machine Tool Orders y/y   prior, -6.30%
2:45am EUR French Industrial Production m/m exp., 0.30% prior, 2.10%
2:45am EUR French Prelim Non-Farm Payrolls q/q exp., 0.20% prior, 0.20%
10th-16th CNY M2 Money Supply y/y exp., 11.40% prior, 11.50%
10th-16th CNY New Loans exp., 675B prior, 1220B
4:00am EUR Italian Industrial Production m/m exp., -1.00% prior, 1.70%
8:30am CAD NHPI m/m exp., 0.20% prior, 0.20%
8:30am USD Unemployment Claims exp., 267K prior, 265K
9:15am USD FOMC Member Bullard Speaks
10th-12th USD Mortgage Delinquencies   prior, 4.66%
10:30am USD Natural Gas Storage   prior, 54B
1:01pm USD 30-y Bond Auction   prior, 2.47|2.4
2:00pm USD Federal Budget Balance exp., -81.9B prior, 33.4B
4:30pm NZD Business NZ Manufacturing Index   prior, 57.7
4:45pm NZD FPI m/m   prior, -0.90%
6:50pm JPY PPI y/y exp., -2.60% prior, -3.20%
8:00pm AUD RBA Assist Gov Debelle Speaks
11th-16th CNY Foreign Direct Investment ytd/y   prior, 4.20%
11:30pm JPY Tertiary Industry Activity m/m exp., -0.20% prior, 0.00%

Earnings

Before Open:

58.com (WUBA)
Juniper Pharma (JNP)
Kohls (KSS)
Macys (M)

After Close:
Michael Kors (KORS)
Nordstrom (JWN)