From Brad Hoppmann: A funny thing happened in the markets earlier this week. And it’s something we all need to be keenly aware of.
Before Tuesday’s opening bell, stock futures rose in reaction to decent economic data. (Chinese manufacturing figures were good, and U.S. manufacturing data met expectations.)
There was also a slew of earnings reports that largely met expectations. They helped to buoy this decent, if uninspiring, Q3 earnings season.
So, why did futures begin to trend lower about 7 a.m. Tuesday?
Well, that’s when a Washington Post/ABC News tracking poll was released that showed Donald Trump with a 1 percentage point lead nationally.
That poll shows that the race for the White House is tightening, and that it’s no longer a “lock” that Hillary Clinton is going to be victorious.
But that national tracking poll wasn’t the only poll that moved markets.
About midday, another poll showed the two major-party candidates are tied in the battleground state of North Carolina. That’s a state where, just weeks ago, Clinton had enjoyed a firm lead. Moreover, it’s also a state that Trump must win if he has any chance to pull off an upset.
So, does this mean the markets are preparing for an “orange swan?”
The orange swan reference is a play on words piggybacking off what’s become known as a “black swan” event.
It’s also a reference to the color of Trump’s distinctive quiff.
The term was popularized by very influential book titled, The Black Swan: The Impact of the Highly Improbable, by Nassim Taleb.
This fascinating book looks at the influence of events that are completely unpredictable, and/or highly improbable, and what kind of major changes can be brought about by events largely impossible to prepare for.
Yet in the case of this election, investors have no excuse for not being prepared for a potential Trump victory.
So, the term du jour on Wall Street, orange swan, is more a clever barb than a proper analogy to the black swan.
Interestingly, even Wall Street knows that a Trump win wouldn’t be an orange swan event. Why else would the market sell off on the release of favorable Trump polling data?
In fact, the reaction to both polls proves that Wall Street is overpreparing for a Trump victory.
The jitteriness alone tells you that markets are nervous about the vote this coming Tuesday. And that’s not likely to change over the next six days.
So, be ready for a jittery market from now until the day after Election Day.
Speaking of jitters, there’s another reason the market is a bit jumpy right now …
As expected, the Federal Reserve left interest rates unchanged at its November meeting. There was no way that the FOMC would make a move to change monetary policy less than a week from the election.
The Fed did, however, signal to markets that it will likely hike at the December FOMC meeting.
While not outright making that claim, the Fed came close by adding language to the FOMC statement indicating that the case for an increase in U.S. interest rates “has continued to strengthen.”
The Fed also wrote that it would ” … wait for some further evidence of continued progress toward its objectives.”
So, provided the economic data (jobs, GDP, inflation) doesn’t tank between now and December, look for a 25-basis-point bump before Christmas.
The SPDR Dow Jones Industrial Average ETF (NYSE:DIA) rose $0.49 (+0.27%) to $179.84 in premarket trading Thursday. Year-to-date, the only ETF that tracks the Dow has risen 3.08%.
This article is brought to you courtesy of Uncommon Wisdom Daily.