Equities report: US elections results reshape potentials for US stock markets

Major US stock market indexes got renewed support fed from the path of the US elections and Trump’s win on Wednesday. Despite the support for US stock markets being clear the extend of the rise of major US stock markets may have been clipped. We intend to discuss how the US elections seem to be reshaping the outlook on  fundamental level for US stock markets but also have a look at tomorrow’s Fed’s interest rate decision and the recent movement of Tesla. For a rounder view we provide a technical analysis of S&P 500’s daily chart.   

US elections reshaping fundamentals for US stock markets

The count for the US elections is ongoing, yet the results pouring in tend to increasingly resemble a red sweep. Trump is currently near locking in his election as the next President of the US, while Republicans have flipped the Senate majority to their favour and are leading a tight race for the House of Representatives. Should we see the red sweep materialising, ie, Trump in the White House and Republicans controlling the US  Congress the effects on US stock markets could be magnified. The probable election of Donald Trump as the new US President opens the gates for lighter corporate taxation and a deregulation of the markets, with heavy emphasis being placed on the private sector. The expectations for such developments could provide additional support for US stock markets as they could open more business opportunities for US companies. On the flip side, Trump also vowed to impose increased tariffs not only on imports from China but also from Europe and other countries in an effort to boost local production, enhancing the isolationistic tendencies for  the US economy. Yet such tariffs could provoke counter tariffs which in turn could weigh on US exports. Furthermore, imposing tariffs on US imports may lead to a stronger dollar making US products even more expensive to export. Last but not least tariffs on US imports could enhance inflationary pressures in the US economy which in turn may prompt the Fed to reconsider its rate cutting plans. It’s characteristic that since yesterday Fed Fund Futures implied a reduction of the probability of a rate cut in December (yet still probable), while at the same time, chances for a pause in the January meeting have been enhanced.    

Fed expected to cut rates, yet will it signal for more?

On a monetary level, we highlight the release of the Feds’ interest rate decision tomorrow. The bank is widely expected to deliver a 25 basis points rate cut and the market seems to have largely priced in such a scenario as Fed Fund Futures (FFF) imply currently a probability of 98.5% for such a scenario to materialise.  FFF also imply a probability of 68.3% for such a scenario to materialise in the December meeting and to take a break in the January meeting. The issue here lies on the fact that yesterday Tuesday, before the US elections, probabilities for the December rate cut were higher, while for the January pause were lower, implying that the market’s dovish expectations over the US elections tended to ease. Hence should the bank deliver tomorrow the 25 basis points rate cut as expected, we may see the market attention turning towards the bank’s forward guidance which is to be included in the accompanying statement and Fed Chairman Powell’s press conference later on. Should the bank express a readiness to continue cutting rates, we may see US stock markets getting a boost as expectations for an easing of the Fed’s monetary policy could be enhanced. On the flip side, should the bank show some hesitation towards extensive further easing of its monetary policy, we may see the US equities markets retreating as its expectations could be contradicted and the market participants may be forced to reposition their trades.      

Tesla’s share price charges from US elections

In the US elections one businessman stood out and may even have stolen the spotlight from the two Presidential candidates. Elon Musk was a firm supported of Trump and characteristically media state that he even attributed $120 million for Trumps campaign. It’s characteristic that Trump praised Elon Musk continuously  in his victory speech today. Understandably, companies owned or influenced by Musk are expected to gain traction as Donald Trump seems to get elected, in a possible expectations of the markets for a quid pro quo. Financial media report a rally of Tesla’s share price in today’s premarket hours and we would not be surprised to see the share’s price getting further traction at the American open and beyond.    

Technical analysis

US500 daily chart

Support: 5890 (S1), 5675 (S2), 5440 (S3).

Resistance: 6150 (R1), 6400 (R2), 6650 (R3).

S&P 500 got some support yesterday and today, breaking the 5890 (R1) resistance line now turned to support. Given that the price action in its upward movement broke the upper boundary of its past sideways motion, which used to be also a record high level, we switch our bias for a sideways motion in favour of a bullish outlook. Furthermore , we note that the RSI indicator rose beyond the reading of 50, implying the build up of a bullish sentiment among market participants. In a word of caution on the other hand, please note how the price action has reached the upper Bollinger band, which may imply that he index’s price action is nearing overbought levels and may correct lower before advancing further. Given that the price action of the index has broken a record high level, we set the next possible target for the bulls at the 6150 (R1) resistance level. For a bearish outlook we would require the price action to form a lower trough than the last one, which would imply that the index has to break the 5890 (S1) support line and continue lower to also break the 5675 (S2) support level clearly.