There’s no question that the most significant event that’s been holding the stock market’s activity to a tight range is a clear resolution of the US  presidential election.  There has been ample speculation as to what the markets are discounting and or expecting, so I may as well add my view.

We show the chart of the QQQ ETF which is an instrument reflecting the Nasdaq listed equities, over the course of the past year. We know that markets are a discounting mechanism which means that presumably, information that is known and anticipated are factored in to prices by knowledgeable investors.  The investment dynamic has changed over the past generation as trading activity has been concentrated more and more into the hands of very large institutional managers and traders, so that the influence of the individual investor has been marginalized.

Large institutional investors cannot enter or exit positions quickly without causing obvious activity in prices, therefore their strategies need to be longer term.

In looking at the market’s direction and correlating with the path of the US election news, we notice that a slow ratcheting climb aligns with a general consensus that Hilary Clinton will be successful in beating her opponent, Donald Trump.  This tells me that the big money is betting (or hoping) on the status quo remaining the same.  Such things as interest rate policies, trade deals and other economic factors are expected to not significantly change.  We notice the selloff in the big Pharma stocks, also widely believed to suffer under a Clinton administration.  We also note the jump in the gold price and a brief selloff in the markets upon the most recent announcement of the FBI’s re-opening of the Clinton email scandal.

I conclude from this market action that a Clinton victory is priced into the markets.  if a Trump victory ensues, I expect that the markets will sell off sharply because expectations were not met and Trump’s new policy directions will be unknown.  However, I fully expect that the markets will resume their advance once the initial shock has dissipated.  The internals for the market have not been deteriorating enough to show underlying structural weakness over the past half year.  Once it becomes clear that no radical policy changes will emanate from a Trump administration, I expect markets to resume their advance.