A change of heart drives the S&P500 higher

Its been a huge week for markets that included the U.S. Presidential election and monetary policy meetings for the RBA, BoE, and FOMC. Throughout, the U.S. election has remained the main driver.

Charts (4)

Before the election, a Democratic win was widely anticipated and thought to be bullish for U.S. equities. A contested election, a split congress, or a Trump re-election was likely to be a headwind for equities.

The first inkling that the pre-election playbook might be ignored, was a rally in U.S. equity futures  as Trump became the betting market's favourite after voting put him ahead in the key state of Florida.

Since then equity markets have continued to rally on the prospect of a Joe Biden Presidency and a split Congress, a scenario previously also thought to be negative for equity markets. However a change of heart towards this appears to have taken place for the  following reasons.

  1. A split Congress will make tax increases, the unwinding of Trumps' tax cuts, and potential unfriendly legislation on tech companies more difficult to implement.
  1. Trade policy, a source of significant uncertainty under the Trump administration is the domain of the White House. A Biden Presidency is likely to use less tariffs and quotas and less protective measures are in general supportive of growth and stocks.
  2. The likelihood of a contested election is fading along with the prospects of success for Trump's legal measures designed to influence the election outcome.

Whether there are any further twists in the 2020 Presidential election remains to be seen. However what is becoming more likely after this week’s rally back above 3420 is the idea that the S&P500 completed a medium term corrective low point at the September 24th, 3198 low, from the 3587 high.

To confirm the uptrend has truly returned, a sustained break above trend line resistance 3510/20 area is required and this would reduce the possibility of a final dip back towards 3300 to complete a contracting “abcde” triangular correction.

A change of heart drives the S&P500 higher

Source Tradingview. The figures stated areas of the 6th of November 2020. Past performance is not a reliable indicator of future performance.  This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

More from Equities

Disclaimer

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

GAIN Capital Singapore Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the GAIN Capital group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), GAIN Capital Singapore Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact GAIN Capital Singapore Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither GAIN Capital Singapore Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

GAIN Capital Singapore Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.

Important Notice:

Cryptocurrencies are not legal tender currency and trading of derivatives on Cryptocurrencies are currently not covered under any regulatory regime in Singapore. Consequently, investors should be aware they do not have protection under the Securities and Futures Act (Cap. 289). Please ensure that you are fully aware of the risks.