The stock market experienced a robust day on Election Day, with major indices, including Small Caps and commodities like gold, Bitcoin, and crude oil, seeing upward movement. Traders were not surprised by the bullish trend, as historical data indicates that the S&P 500 has not recorded a down day on Election Day since 2000. Notable instances include the S&P rising by 1.78% on November 3, 2020, and a similar pattern observed in previous elections. Amid this environment, the volatility index (VIX) saw a decline, reflecting a market perception of reduced uncertainty ahead of upcoming events, particularly the Federal Open Market Committee (FOMC) meeting.
The recent trading session was marked by profit-taking activity related to the “Trump Trade,” coinciding with increasing odds on betting platforms, indicating higher expectations for political outcomes favoring the former president. In a notable market shift, Nvidia (NVDA) regained its status as the world’s largest company by market capitalization, surpassing Apple (AAPL) once again, further illustrating the dynamic nature of the tech sector. The decline in VIX is indicative of waning fear in the options market as traders anticipate future movements tied to economic indicators.
Small cap stocks were particularly volatile, characterized by strong short squeezes that drove prices higher. One stock that attracted attention was Digital World Acquisition Corp (DWAC), reflecting the tumultuous nature of stocks associated with political developments. Treasury yields exhibited erratic behavior, initially rising due to disappointing auction results in gilts, only to retreat following strong demand during a 10-year Treasury auction. Additionally, yields on government bonds appeared to correlate with movements in stock prices, notably Digital World Acquisition Corp, highlighting the interconnectedness of these markets.
Bitcoin experienced a notable roller coaster day, climbing back above the $70,000 threshold before facing pressure from declining trends in other assets, including bond yields and stocks like DWAC. This high volatility characterized the crypto market as traders navigated sentiments tied to broader economic developments, particularly since Bitcoin’s movements have increasingly mirrored traditional financial markets. Meanwhile, gold held steady around $2,740, reflecting investors’ appetite for safe-haven assets amidst fluctuating risk sentiments.
Crude oil markets were similarly volatile, first responding to geopolitical developments linked to Israeli politics, specifically the dismissal of Prime Minister Gallant, followed by a quick reassessment by traders regarding the implications of continuing instability in the region. Despite early price strength, traders corrected their outlook, leading to fluctuations in oil prices throughout the day. As the election period winds down, focus will soon shift towards upcoming Federal Reserve communications and policy decisions that may significantly influence market trajectories.
Lastly, expectations surrounding Federal Reserve actions are evolving, with market participants pricing in a fluctuating likelihood of interest rate cuts in the near future. Current sentiments suggest a 50% chance of one or two cuts in 2024, alongside an equal chance of two or three cuts in 2025. This uncertainty reflects broader economic conditions and investor readiness to adjust accordingly as policymakers respond to emerging data and market shifts. All these developments signal a crucial junction for traders and investors, as they prepare for significant upcoming economic indicators and central bank decisions that could shape the financial landscape.
