November 9th, the day after the presidential election, could prove the most challenging day to trade the markets in four years.
Stocks could explode higher, utterly collapse, do nothing, or do all three on the same day. This could be the preeminent whipsaw day of the decade, if not the century.
At the moment, the market has fully discounted a Clinton win, a Democratic capture of the Senate, and a marginal Republican win in the House of Representatives.
There are two possible scenarios here.
The ascendance of the pro globalization, pro infrastructure view could unleash tens of billions of dollars of new equity allocations that immediately take the major share indexes to new all time highs very quickly.
The major indexes could add 10% over the next six months.
The pro growth outcome would send the dollar (UUP), gold (GLD) and commodities (COPX) soaring, while bonds (TLT) may take a dump.
On the other hand, a Clinton win, the expected outcome, could also deliver a ?Buy the rumor, sell the news? type event.
That could trigger a quick 5% correction, and then a more prolonged grind up to new highs by yearend. We saw much the same in the wake of the Apple (AAPL) earnings release on Tuesday, October 25th.
So there you have it: up now, or up later.
That?s the easy part.
Let?s say Donald Trump wins, to which I assign a 1% probability. That would be an enormous surprise which markets hate.
Stocks markets (SPY) would focus on an immediate decline in international trade and a huge increase in budget deficits, and would probably open down 5%-10%.
Virtually all other asset classes will fall as well, thanks to an expected doubling of the national debt and slower global growth. Defense spending would also rise.
This is not expected, so Trump supporters should not hold their breath.
However, what if there is no definitive outcome on November 8th? What if the election is thrown into the courts as it was in 2000 regarding Bush vs. Gore.
Remember all that "hanging chad" counting in Florida? They didn?t get an election outcome until December.
Since the Senate blocked President Obama from appointing a Supreme Court justice, the august body is now split 4-4. So we won?t get any definitive rulings there.
A final decision may have to be rendered by the House of Representatives, in which the Republicans have a 30-seat majority. That would hand the election to Trump on a silver platter.
This is unprecedented in US history. Risk assets would take an extremely unfavorable view of such a development and most likely would send stocks into a bear market.
For this to happen the margin in a large state, like Florida, with 29 votes in the Electoral College, would be enough to swing the election outcome either way.
The margin would have to be only a few hundred votes, triggering multiple recounts and oceans of litigation.
Yes, it may all come down to Florida one more time.
?
If you are a long term investor or financial advisor, which is most of you, it would probably be better to just not trade at all on November 9th.
Given the vast expanse of time, the impact on your portfolio should be minimal. It?s tough to beat the earnings power of American corporations for the long haul.
If your candidate won, go out and have a glass of champagne. If he lost, buy a bottle of cheap gin and finish it.
