Wall Street rallies on election day as votes pour in

* Markets may have to wait for days for eventual outcome

* US services sector accelerates on employment boost

* USD eases, yields steady as vote counting gets underway

FX: USD sold off again for a second straight day on voting day. The midpoint of the down move from the April high to October low is at 103.33. The next retracement level below that sits at 102.58. The polls remain neck and neck though some have suggested that the Democrats are gaining the upper hand. Markets have priced in a near Red wave over the past few weeks so a Harris win would likely see the greenback move lower quite sharply.

EUR advanced up through the 50% level of the April to October bull move at 1.0903. The next major level is at 1.0974 with the 100-day SMA at 1.0993. Major support sits just below 1.08 and the October low at 1.0760. We see that 1-week volatility for the major trades at 2.2 times its realised volatility. Trump 2.0 would impact the euro heavily on tariffs. A Harris win should see the euro go strongly bid.

GBP picked up to trade above 1.30 and the 21-day SMA at 1.3001. Points of reference to the upside are 1.3160 (23.6%) and  to the downside at 1.2862 (50%) from the April to October bull move. The BoE on Thursday is expected to cut rates by 25bps with focus on any commentary on forward guidance and last week’s UK budget.

JPY could be rolling over with the midpoint of its down move from the July high at 150.76. The major will most probably sell-off sharply on a Democrat win as the 10-year Treasury yield retraces its recent move higher. We are watching 4.16% and 4.03% as levels of support. The recent overbought top is at 4.38%.

AUD moved higher again close to near-term resistance at 0.6644. The aussie will be in the crosshairs of the US election as a proxy for China tariffs. It will sell off and challenge the recent low at 0.6536 on a Trump victory. USD/CAD tumbled through 1.38 with its biggest one-day sell-off since late September. The loonie has been heavily shorted so this is likely position squaring. Bearish bets on CAD hit their highest level since mid-August. Along with the Mexican peso, it is obviously very highly leveraged to US trade and growth.

US Stocks closed higher as voters hit the polls. The S&P 500 settled 1.23% higher at 5,782. The tech-heavy Nasdaq 100 added 1.32% to finish at 20,227. The Dow finished up 1.02% at 42,221. All 11 sectors ended in the green with consumer discretionary leading. The benchmark S&P 500 index clawed back about half of its losses from the prior four sessions. It’s a dead heat in some of the contentious battleground states which means a protracted vote count. The VIX remained above its long-term high at 20.45

Asian stocks: Futures are mixed. Asian stocks were mixed also after better China PMI but caution ahead of the US election. The ASX 200 moved lower on a weak financial sector. The Nikkei 225 rallied after the long weekend with strength in exporters. The Hang Seng and Shanghai Composite benefitted from the China data.

Gold continued to track sideways awaiting the White House winner. As we said yesterday, higher yields would be a negative for bugs, but rising trade tensions could see a haven bid under Trump. Less inflationary pressure under Harris would be positive for gold, while geopolitics could be mixed.  

Day Ahead – US Election results to filter in

Political analysts are calling this the closest US presidential race since 1972. In fact, according to futures traded on Kalshi, there is a one in three chance that the Associated Press won’t be able to call the election either Tuesday or Wednesday. In the 2020 election, news media declared Joe Biden the winner four days after election day. In 2000, it took four weeks to declare the victor. The congressional make-up (i.e., who wins the Senate and the House) adds another layer of complexity.

Most experts expect a lot of market volatility around the next day or so and perhaps even more interest rates volatility once the election outcome becomes clear. The implied rates volatility from the MOVE index, which is the “VIX / fear gauge of bonds” is now on par with the inflation spikes in 2022 and the 2008 Global Financial Crisis.

All that said, as we often remind ourselves, the economic backdrop has tended to be the dominant driver of market returns over the longer term, with bouts of volatility around political events proving short-lived. We don’t expect this time around to be any different.

Chart of the Day – Dow trades around the 50-day SMA

Stocks are jittery ahead of the election results. But the reality is that presidents have historically had relatively little impact on financial market returns. There can be short-term market reaction to an election, but longer-term equity, asset class and sector returns are not generally reflective of a presidency. Returns are in some cases opposite to those implied by amplified electioneering. Indeed, since Jimmy Carter’s presidency, stocks have had double-digit annualised total returns during every presidential term except one. And annualised returns were actually very similar during Barack Obama and the first Donald Trump’s presidency, despite their very different goals and policies.

Major levels in the Dow are the 50-day SMA at 41,968. Fibonacci retracement levels of the August to October to the upside are at 42,186 (23.6%) and the downside at 41,181 (38.2%) and 40,927 (50%). A Red Sweep is seen as boosting stocks on pro-growth and deregulation across industries like banks, industrials, transport and energy. There cold a broadening out of equity leadership. A Blue Wave is unlikely but could be more negative for equities.

Disclaimer: The material provided here has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Whilst it is not subject to any prohibition on dealing ahead of the dissemination of investment research we will not seek to take any advantage before providing it to our client. No representation or warranty is given as to the accuracy or completeness of this information and therefore it shouldn’t be relied upon as such. Any research provided does not have regard to specific financial situations, needs or investment objectives. Vantage accepts no responsibility for any use that may be made of these comments and for any consequences that result. Consequently, any person acting on it does so entirely at their own risk. We advise any readers of this material to seek professional advice where necessary. Without the approval of Vantage, reproduction or redistribution of this information isn’t permitted.