The election results are not yet final, but one thing is clear - the Republicans did not perform as well as they had hoped. There is still a great likelihood that Republicans will win the House but not by the margin that was anticipated. The Senates may come down to another run-off election in Georgia.
The results will have repercussions for Trump as many of the candidates he backed are underperforming. On the other hand, Ron DeSantis far exceeded expectations in Florida. This is going to be an important battle for the market, which is focused primarily on candidates that can win and will be the most business-friendly.
The market was trading down on the election uncertainty this morning, but the main concern was that the Republicans win control of the House and create legislative gridlock. That still seems very likely, and it is the way the market reaction is quite mild.
We aren't done with the election yet, but the focus is now going to shift back to economic issues. The CPI report will hit tomorrow morning, and that is going to be a significant market mover. We will see positioning in front of that number today.
The market has been too optimistic about cooling inflation, and there is a danger that this may be the case again. Even if CPI does fall to an 8% annual rate as expected, it is still quite elevated, and there are indications that it will stay sticky to the upside. The Fed is not convinced that it is winning this battle. However, if CPI is not red hot again, then that will likely increase the odds of a 0.5% hike in December rather than another 0.75% hike.
There continues to be chaos in the crypto market. Bitcoin hit new 12-month lows overnight. The crisis in FTX is far from resolved, although the FTX token appears to have stabilized around $4.50 or so. The problem is that issues at yet another major crypto broker are undermining confidence in the entire asset class, and that has repercussions for speculative trading in equities as well
The market has been using election optimism as a justification for rallying for a few days, but now we have increased overhead resistance, some election disappointment, and the high risk of the CPI report to confront. Technical action has improved, and the important thing now is that stocks find some support without dropping so much as to put the October lows into play.
Suppose we can make it past the CPI report tomorrow, then the next big event isn't for a few weeks when the Fed has its next meeting. That may set the stage for the positive seasonality that is being anticipated.
We have a mixed start this morning as the market is trying to sort out the impact of the election.