Stock markets signal a Trump victory?
All the five giant banks have reported their Q3 earnings. Wells Fargo and BofA-ML did disappoint in some areas but Goldman Sachs crushed the consensus target by 74%.
It shouldn’t be a surprise if banks did well. The Fed, Treasury and Congress pumped trillions of dollars into the system to keep consumers and business solvent. The Fed also created tremendous revenue opportunities for the banks. They eliminated the reserve requirement for the banks, bringing the ratio down from 10% to zero. The Fed is also a buyer of corporate bonds, reducing risk in the credit markets, creating record issuance of corporate debt. This drives investment banking business at the big banks. And to top it up the sea of liquidity has created a broad stock market boom, which in return has driven revenues higher at the major banks.
The resilience of the stock markets are sending mixed signals about the outcome of the Presidential election. While Biden is leading by a good margin in most opinion polls , the historical evidence is that if the stock markets can hold up this well , the incumbent has a fair chance of being re-elected. We will cover this through a special report during this week.
Equities
Markets ran into some strong resistance but the selling intensity has been muted. Current supports at 3480 in the S&P 500 could be a stopping point and markets could move higher to challenge the previous high at 3550. Only a decline below the low of Oct 6 at 3355 would indicate that a bearish trend will re-emerge.
Bonds
Bonds made a five wave decline from 177^12 on Sep 29 to 173^10 on Oct 7. Since then a corrective upward pattern has taken hold of the market. This should soon resolve itself and the down move should start to continue.
Euro
There is no change in the Euro analysis. Only a move below 1.1610 will change the outlook. Looking for a break above the previous high at 1.2010.
Gold
Gold declined to 1883 yesterday. A bit larger than an expected correction but still the support at 1873 on Oct 6 should contain it. A decline below 1873 will worry us for the bullish case though the next line of support is at 1849.
Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office and a hedge fund.