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- No BS. Just Bullish.
No BS. Just Bullish.
Post-Election Trade TLDR
The Wall Street Skinny
November 07, 2024
This Week on The Floor
Ready to stop talking and start trading after the election? Get the skinny on the post-election trade here.
We’re giving you the quick rundown of the last 36 hours of price action in the markets, and highlighting some of the big stories to watch coming out of the US election.
Give me the TLDR on the post-election trade
Belated Fed announcement TODAY
Week 6 of teaching you how to read the financial news
Markets Recap / Deal News
Interviewing this week? Here’s some content for your conversation.
I was asleep by 9:30pm on election night, but the market seemed to call the Trump win long before then.
As soon as results started suggesting Trump was outperforming expectations, we saw risk assets surge across the board.
Equities
Equities rallied to fresh record highs, with banks, Tesla, crypto stocks, and prison/detention center operators being among the big winners.
Theory: reduced regulations favoring banks / Elon Musk deeply connected to new administration / Trump has been publicly very pro-crypto / tightening of immigration policies
Bonds
Long end rates (10s and 30s) sold off (went higher) by nearly 20 basis points. This price action was consistent with the moves we’d seen whenever any pre-election news favored a Trump win.
Theory: higher inflation from a combination of stronger economy / extended tax cuts / new tariffs being imposed requires higher return from long dated investments
10-year US Treasury Yields (courtesy: MarketWatch)
USD
The US dollar strengthened considerably against most other major currencies.
Theory: stronger economy → higher interest rates → higher currency
Crypto
Big name cryptocurrencies screamed higher, with Bitcoin making new highs. IBIT (BlackRock’s Bitcoin ETF) saw its single highest trading volume day, with $4.1bn in trading activity.
Theory: more crypto-friendly administration will allow for a broader US crypto user base, whether through new ETFs or other vehicles
Gold
Gold sold off considerably, after trading up into the election itself.
Theory: While gold is often treated as an inflation hedge (which should theoretically point to the opposite price action), higher funding costs and competition with higher yielding assets (when Gold yields nothing) also create an inverse relationship to the USD and bond yields
Make sure you check out today’s episode of The Skinny On…where we’ll break down all of this in further detail this afternoon!!
For a great crash course in the basics of macro theory informing our takes above, check out our interview with CNBC’s Fast Money host Guy Adami here.
That’s Guy on the left!
So now what happens with the Fed?
The FOMC announcement was moved to 2pm Thursday.
Normally, Fed meetings happen over a 2-day period from Tuesday-Wednesday.
However, this week’s meeting was shifted a day later to avoid syncing up with the US election.
As you may recall, the Fed eased 50 basis points in September, surprising the market to the upside.
The market is currently pricing in a 100% chance of a 25 basis point ease today, with a total of 100 basis points worth of eases remaining this cycle.
A snapshot of the Fed Funds futures market (rate = 100-px). Courtesy: CME Group
But the world looks different than it did 48 hours ago.
With the market pricing in a stronger economy and the consensus view from economists anticipating that Trump’s policies will add inflationary pressure, do continued eases make sense?
The “Sahm Rule” — one indicator telling us whether or not the US is in a recession and an auger for further rate cuts — was “de-triggered” in October, while the election results were still unknown.
How is the Fed going to continue along its current easing cycle?
Bloomberg has a great article today talking about how we will likely see greater uncertainty over the Fed path in the coming months.
And while the market is treating today’s rate announcement as a done deal, all eyes will really be on December’s meeting, when we also get a revised dot plot signaling future expected rate paths from the individual FOMC members.
This Week in the Markets
So you’ve spent the past six weeks tracking a position and using the financial press to help you make positions and think through your PNL.
Hopefully you wrote down any terms you didn’t understand and looked them up.
For the next few weeks, we are going to use this segment to help define some of those terms for you.
Here are our first four, some of which we used in today’s newsletter:
Long: when you own an asset, you have a long exposure. When thinking in price terms, you want the price of the asset to go up. When thinking in interest rate terms, you want rates to go down.
Short: when you have sold an asset that you do not actually own, you have a short exposure. When thinking in price terms, you want the price of the asset to go down. When thinking in interest rate terms, you want rates to go up.
Rally: when the price of an asset goes up. All else being equal, anyone who is long that asset makes money. Anyone who is short that asset loses money.
Sell off: when the price of an asset goes down. All else being equal, anyone who is short that asset makes money. Anyone who is long that asset loses money.
Stay tuned for more definitions next week!