Trump Melt-Up

First an update: "market exit" signal is down to 5.52 percent. Below 5.50 percent, the bull market has nothing to worry about from the credit market.

On to the election. For this post, I only want to discuss broad market outcomes. My expectation right now is a Trump win causes a melt-up in the markets, broadly speaking. Gold, equities, you name it. A big reason there has been no infrastructure bill over the past 4 years was Russiagate and internal opposition from the GOP. If Trump wins, the opposition will wilt on this issue, particularly because the economy looks like it will crumble without stimulus. More imminently, if Biden were to implode tonight, the Democrats might quickly agree on a stimulus bill because their re-election chances will take a hit.

If Biden does well tonight or is seen as the destined winner, I suspect stocks will sell-off in October because wealthier investors will lock in this year's lower capital gains tax rate. Traders and investors positioned in "Trump trades" will shift out of them. After the election, and if the Democrats take control of the Senate, the spending floodgates will open. The dollar will likely sell off hard on a Biden win and various trades related to U.S. trade war with China would reverse.

Finally, stocks should rally if either candidate wins a clear victory on election night.

Sector performance remains mixed. Weakness in cannabis is the clearest sign (if we can take any of this as indicating election outcomes) that the market doesn't yet expect a Democrat sweep. Solar's move is good for Biden. Gun stocks might no longer be a good signal with Trump getting another SCOTUS nominee. Unless Barrett turns out like Souter, it looks like gun rights are secure for now.

ZH: "Crash-Up Risk": What If The Election Is Not The "Doomsday Event" The VIX Expects It To Be