Stocks Surging into Final Hour on Election Uncertainty End, Yen Weakness, Short-Covering, Biotech/Financial Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Higher
  

• Sector Performance: Mixed
  

• Volume: Heavy

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 15.05 -19.69%

• Euro/Yen Carry Return Index 120.78 -.26%

• Emerging Markets Currency Volatility(VXY) 10.28 +9.25%

• S&P 500 Implied Correlation 45.01 -25.12%

• ISE Sentiment Index 71.0 -15.48%
  

• Total Put/Call 1.07 -28.19%

• NYSE Arms .48 -50.32% 

Credit Investor Angst:

• North American Investment Grade CDS Index 74.38 -1.88%
  

• America Energy Sector High-Yield CDS Index 659.0 +.41%

• European Financial Sector CDS Index 96.73 +.8%

• Western Europe Sovereign Debt CDS Index 19.75 +2.92%

• Asia Pacific Sovereign Debt CDS Index 37.07 +4.79%

• Emerging Market CDS Index 243.62 +4.40%
  

• iBoxx Offshore RMB China Corporate High Yield Index 132.72 -.01%

• 2-Year Swap Spread 25.5 +1.75 basis points

• TED Spread 48.0 +.25 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -44.5 +2.0 basis points
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 71.67 -1.24%
• 3-Month T-Bill Yield .43% +1.0 basis point

• Yield Curve 117.0 +17.0 basis points
  

• China Import Iron Ore Spot $70.98/Metric Tonne +3.92%

• Citi US Economic Surprise Index -9.0 +.8 point

• Citi Eurozone Economic Surprise Index 33.4 +.1 point

• Citi Emerging Markets Economic Surprise Index -4.90 +1.7 points

• 10-Year TIPS Spread 1.86% +12.0 basis points
• 83.1% chance of Fed rate hike at Feb. 1 meeting, 85.4% chance at March 15 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +1,014 open in Japan 
• China A50 Futures: Indicating +71 open in China

• DAX Futures: Indicating +7 open in Germany

Portfolio: 

• Higher: On gains in my medical/biotech/tech/retail sector longs and emerging markets shorts

• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges

• Market Exposure: Moved to 75% Net Long

Today's Headlines

Bloomberg:

• Europe Braces for Trump Trade Assault as Economy Struggles. (video) The forecasts for Europe’s fragile economic recovery now have a Trump-shaped hole in them. Just hours after Donald Trump was declared winner of the U.S. presidential race, the European Commission published calculations for the outlook in the 19-nation euro area for slower growth in the region’s four biggest economies: Germany, Italy, Spain and France. Those projections were completed before the surprise result of the vote was known, suggesting there may be more risks to come. With campaign pledges that range from ripping up trade deals to expelling undocumented workers, the impact of the oncoming Trump presidency is incalculable but potentially severe for the major trading partners of the world’s biggest economy. The euro area -- already burdened by the U.K.’s decision to leave the European Union and a roster of populist candidates lining up for elections over the next 12 months -- looks especially vulnerable.
• Italy’s Next in the Crosshairs for Anti-Establishment Wave. The anti-establishment whirlwind is headed for Italy now that it has sent Donald Trump to the White House. Italian government bonds slid in the wake of Trump’s stunning victory, reflecting worries that Prime Minister Matteo Renzi will lose a referendum on political reform, scheduled for Dec. 4.
• Trump Win Spells More Trouble for Abenomics. Donald Trump’s stunning election victory delivers yet another blow Prime Minister Shinzo Abe’s efforts to revive Japan’s economy, underscoring the vulnerability of Abenomics to fluctuations in the yen and financial markets. Fears of a hard landing in China and the U.K.’s Brexit vote sent investors fleeing risk assets earlier this year, with many seeking the perceived safety of the yen, in the process eroding the profits of Japan’s exporters and the central bank’s inflation goal. The currency surged again as investors reacted to Trump’s win during Asian trading, though the rally eased as the European morning began. Trump’s win all but dooms the Trans-Pacific Partnership trade agreement, which could have boosted Japanese manufacturers. Abe was also counting on the pact as a catalyst for long-promised structural reforms in protected sectors of the economy. "This is a critical moment for Abenomics,” said Yasunari Ueno, the chief market economist at Mizuho Securities Co. in Tokyo. "A huge political obstacle has suddenly fallen in front of it.”
• Russia Stocks Jump as Trump Win Stokes Bets for Sanctions Relief. (video) The Micex Index advanced 2.2 percent to 2,011.11 by 6:43 p.m. in Moscow, the biggest gain in the developing world, as most equity gauges declined after Trump pulled off an electoral upset by winning the race to the White House. The ruble was down 0.4 percent at 64.0 per dollar as Brent crude retreated.
• Emerging Markets Drop as Investors Weigh Trade Risk Under Trump. (video) Emerging-market stocks fell the most since June and Mexico’s peso plunged the most in the world as Donald Trump’s presidential election victory stoked concern that the U.S. may adopt protectionist policies, jeopardizing benefits to developing nations from trade deals and immigration. The peso, the currency most vulnerable to Trump’s policies, fell toward its lowest closing level against the dollar on record as the Republican candidate defied forecasts by winning the race for the White House. A gauge of developing-nation exchange rates ended a two-day gain. The MSCI Emerging Markets Index was headed for its biggest one-day slump since the U.K. vote to leave the European Union in June. Technology and industrial stocks declined the most as 10 of the benchmark gauge’s 11 industry groups slumped. The MSCI Emerging Markets Index slid 2.4 percent to 880.40 at 11:26 a.m. in New York.
• Industry Rift Widens on Trump as European Stocks Stage Rebound. (video) Winners separated from losers as European stocks rallied to their biggest turnaround since March, with health-care providers and miners surging, while utilities and food exporters bore the brunt of selling, following Donald Trump’s victory in the U.S. presidential election. Drugmakers, the region’s largest sector, jumped the most since 2008, supporting equity benchmarks as Trump won the race to govern the region’s biggest export market. Novo Nordisk A/S and Shire Plc rose more than 4 percent, after investors punished the shares in recent weeks amid disappointing earnings and speculation Hillary Clinton would push for drug-price controls as president. Rio Tinto Group led miners to the biggest gain on the Stoxx Europe 600 Index, as base and precious metal prices jumped. The Stoxx 600 rose 1.5 percent at the close, after earlier dropping as much as 2.4 percent, capping its biggest three-day gain since July. The volume of shares changing hands was about 68 percent higher than the 30-day average. Risk aversion was still evident in some industry groups.
• Trump Day-One Winners and Losers Piling Up Fast Across the Globe. (video)
• 2016 Election Center. (map)
• Fed Faces Overhaul as Washington Braces for Trump-Led Shakeup. The leadership, powers and policies of the Federal Reserve may look very different in 18 months. President-elect Donald Trump can’t remove Fed Chair Janet Yellen from office before her four-year term expires. By mid-2018, however, Trump can replace the Fed’s top personnel and potentially alter monetary and regulatory policies. Some members of the Republican-controlled Congress may also take aim at the Fed’s independence from political influence. “Trump will have the ability to substantially reshape the nation’s central bank,” said Aaron Klein, a research fellow at the Brookings Institution in Washington.

Wall Street Journal:

• Donald Trump Clinches Presidency After Key Battleground Wins. Anti-establishment Republican rode populist wave, surpassing polls and pundits’ expectations. Republican Donald Trump, a political novice who ran a nationalist campaign calling for restricting immigration and international trade, scored a stunning come-from-behind win to become the 45th president of the United States, defeating Democrat Hillary Clinton.
• Donald Trump Transition Team Planning First Months in Office. Donald Trump’s transition team has had smaller staff than previous Republican nominees.
• Donald Trump’s Win Hailed by Europe’s Populists as Proof of Anti-Establishment Momentum. A ‘victory of freedom,’ says National Front’s Marine Le Pen.
• On Energy and Climate, Donald Trump to Chart a New Course. The president-elect could try to roll back regulations on emissions, hydraulic fracturing.
• Benchmark 10-Year Treasury Yield Crosses 2% for First Time in 8 Months. Yield at highest level since January.
• Ballot Measures Tightening Firearm Access Enjoy Good Night.
• Donald Trump’s Win Gives GOP Fuel to Slash Taxes. Republicans expect most sweeping tax-code changes since 1986; Democrats may have little chance to influence scope.

Fox News:

• 2016 Election Coverage: Live Blog:
• Doggedness and Defiance: How Trump won. (video)
• Fox Exit Polls.

CNBC:

• The places that flipped and gave the country to Trump.
• Donald Trump's win signals the end of Obamacare as we know it. (video)

Zero Hedge:

• Hillary's Concession Speech - "This Is Painful, And It Will Be For A Very Long Time”.
• Trump Victory Crashes Chinese Yuan To Record Low. (graph)
• China Is Suddenly Dumping Treasuries. (graph)
• 10-Year Treasury Yield Tops 2.00% For First Time Since January. (graph)
• Will Trump Fire Janet Yellen? Here Is Wall Street's Response.
• OPEC Just Knocked $20 Off Its Oil Price Outlook.
• Exit Polls Suggest Latinos Rallied For Trump Despite Rhetoric From Left.
• What A Trump Victory Really Means For The Market.
• About Those Polls - Rigged Or Just Clueless?
• WTI Crude Slides As US Production Soars Most In 18 Months. (graph)
• Wholesale Sales Miss Expectations, Inventories Shrink For First Time In 6 Years. (graph)
• Revisionism Arrives: Goldman Says Trump's Victory Will Have Little Impact On The Market.
• The Morning After: Newspaper Covers From Around The Country.
• Clinton Concedes: Donald Trump Becomes 45th U.S. President. (video)
• Brexit Vs US Election - Deja Vu All Over Again.
• Obamacare Is Over: Republicans Retain Senate.

Business Insider:

• CLINTON: We owe Trump a chance to lead.
• PAUL RYAN: Trump 'earned a mandate' with 'most incredible political feat I've seen in my lifetime'.
• Donald Trump's election has Wall Street questioning the future of the Federal Reserve.
• Celebrities react to Donald Trump's presidential victory with shock and horror.
• Goldman Sachs(GS) just announced 84 new partners.
• REPORT: GM(GM) to lay off 2,000 hourly workers.
• The death penalty won in every state that had it on the ballot.
• OPEC's job just got a lot harder.

Feedspot.com:

• Top 25 Hedge Fund Blogs For Hedge Fund Managers and Investors.

Politico:

• Meet Trump's Cabinet-in-waiting.

Bear Radar

Style Underperformer:

• Large-Cap Growth +.3%

Sector Underperformers:

• 1) Hospitals -14.8% 2) Utilities -3.3% 3) Foods -2.4%

Stocks Falling on Unusual Volume: 

• KSU, TRIP, HMSY, HCA, THC, MMS, STZ, IGF, MOH, GMED, RGR, IPXL, PCTY, SWHC, AMSG, CNC, SPA, LTRPA, EVHC, HRC, CSIQ, TMH, PAYC, LPNT, VCRA, SO, PHH, WU, ALB, MO, VCRA, PM, MPW, MD, VAR, SRE, TMH, XEL, GM, TSLA, LH, HRB, ISRG, CERN, ISRG, SBAC, BR, SYK, HOLX, ASH, CTSH, O, SCTY, PLD, AMT, CAFD, HLS, HASI, NEE, GPRE, MUSA, INGR, NEP, PEGI, NYLD, PAYC, WCG, UHS, NCLH, COTY and THC

Stocks With Unusual Put Option Activity:

• 1) BK 2) XLV 3) EWW 4) KSS 5) JWN

Stocks With Most Negative News Mentions:

• 1) MMS 2) HCA 3) GM 4) KSU 5) BWA

Charts:

• ETFs Falling on Unusual Volume
• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Small-Cap Value +1.9%

Sector Outperformers:

• 1) Biotech +7.7% 2) Steel +6.7% 3) Coal +6.5%

Stocks Rising on Unusual Volume:

• CXW, UBIO, GVA, CELG, PRI, PFE, GEO, MLM, OSK, LPLA, DERM, FGEN, OMF, VMC, URI, SCMP, CVI, IONS, ARIA, NAVI, CMC, X, ETE, HEES, ARLP, HRI, FGEN, ICPT, PBF, EXEL, XLRN, URI, SGEN, MGNX, HALO, USCR, BEN, TEX, NUE, ACM, TPC, ETP, RARE, REGN, SC, HQY, LXRX, RS, AMP, FLR, MRCY, SXC, BMRN, NBIX, OSK, HII, JEC, UNM, INCY, MCK, AKRX, VRTX, STLD, ALDR and TRN

Stocks With Unusual Call Option Activity:

• 1) STZ 2) CXW 3) GD 4) ABBV 5) TMUS

Stocks With Most Positive News Mentions:

• 1) MTW 2) LNC 3) KEY 4) VOYA 5) F

Charts:

• ETFs Rising on Unusual Volume
• Stocks Rising on Unusual Volume

Morning Market Internals

NYSE Composite Index:

• Volume Running +107.9% Above 100-Day Average
• 5 Sectors Rising, 5 Sectors Declining
• 42.9% of Issues Advancing, 55.0% Declining
• 126 New 52-Week Highs, 99 New Lows
• 49.2% of Issues Above 200-day Moving Average
• Average 14-Day RSI 38.2%
• Vix 15.9 -15.0%
• Total Put/Call 1.13 -24.2%
• TRIN/Arms .40 -58.7%

Wednesday Watch

Evening Headlines

Bloomberg:

• U.S. Stock Futures Tumble as Election Narrows Into Dead Heat. (video) U.S. stock futures plunged as investors rushed to price in a potential victory by Donald Trump in the U.S. presidential race, as rising odds of victory for the Republican in a succession of key swing stakes shocked investors into a near-panic and threw global markets into disarray. December contracts on the S&P 500 Index lost 3.1 percent to 2,068 at 9:48 p.m. in New York, wiping out gains that reached 0.8 percent. Key battlegrounds of Virginia, North Carolina and New Hampshire are among other states where polls have closed and results have been too close to call, but show Trump leading over Democrat Hillary Clinton.
• China’s Factory Prices Quicken as Drag on Global Inflation Eases. China’s factory-gate inflation picked up further last month while consumer prices accelerated, suggesting government efforts to reduce overcapacity have gained some traction and alleviating a source of global disinflationary pressure.
• Asian Stocks Drop as Results Show Tight Race for U.S. Presidency. Asian stocks fell in volatile trading as investors await the outcome of the U.S. presidential election, with early results showing Democrat Hillary Clinton and Republican Donald Trump locked in a tight race. The MSCI Asia Pacific Index lost 1.1 percent to 136.29 as of 11:25 a.m. in Tokyo, after rising as much as 0.8 percent.
• OPEC Boss Warns of Oil-Market Instability If No Deal on Output. OPEC’s chief warned of prolonged instability in the oil market if the producer group and other major crude suppliers fail to act jointly to limit output and curb a global glut. An inability of the Organization of Petroleum Exporting Countries to implement the deal it reached in Algiers in September will have “negative consequences on the already fragile state of the industry,” OPEC Secretary-General Mohammed Barkindo said Tuesday at a briefing in Abu Dhabi. Markets are “eagerly awaiting” combined action by OPEC and non-OPEC producers, he said.
• Icahn More Than Doubles Hertz(HTZ) Stake as Earnings Miss Slams Stock. Billionaire investor Carl Icahn more than doubled his stake in Hertz Global Holdings Inc., after the rental-car company reported third-quarter profit that badly missed estimates. Icahn, 80, bought an additional 15.1 million Hertz shares, boosting his stake to 33.77 percent from about 15.6 percent, according to a filing Tuesday. The investor, who first revealed a stake in Hertz in 2014, was already the company’s biggest shareholder.
• GoPro(GPRO) to Recall New Karma Drones on Reports of Power Failure.

Wall Street Journal:

• 2016 Election Day: Live Results and Analysis.

Fox News:

• 2016 Election Coverage: Live Blog:
• Tight race for White House as Trump wins Midwest states; Clinton claims East Coast victories.

CNBC:

• Billionaire Ken Langone: The grim reaper is not far away. (video)

Zero Hedge:

• GMO's Grantham Warns Of "Dismal Consequences" For Investors In A World Where Bubbles Don't Burst.
• Homebuilders Hit 8 Month Lows After 'Death Cross' Strikes. (graph)
• Walgreens Sues Theranos, Seeks $140 Million.
• WTI Crude Rises After Big Drawdown In Gasoline, Distillate Inventories. (graph)
• We're All Hedge Funds Now - Central Banks Become World's Biggest Stock Speculators.
• "It's Quiet, Too Quiet" - Stocks, Peso Bid But Hedgers Panic Buying Protection In US, Mexico. (graph)

Business Insider:

• Oil could tumble into the $30s if OPEC fails.
• Earnings reporting has turned into a dangerous shell game.

Predictit:

• Donald Trump 77% Chance of Winning US Presidency, Hillary Clinton 31%.

Feedspot.com:

• Top 25 Hedge Fund Blogs For Hedge Fund Managers and Investors.

Night Trading 

• Asian equity indices are -2.75% to -1.5% on average.
• Asia Ex-Japan Investment Grade CDS Index 118.75 +2.5 basis points. 
• Asia Pacific Sovereign CDS Index 35.25 unch.
• Bloomberg Emerging Markets Currency Index 71.89 -.94%. 
• S&P 500 futures -4.02%. 
• NASDAQ 100 futures -4.04%.

Morning Preview Links

Earnings of Note
Company/Estimate 

• (DISH)/.68
• (VIAB)/.65
• (WEN)/.10
• (TCS)/.05
• (ETP)/.33
• (FLO)/.21
• (MYL)/1.46
• (NTES)/2.95
• (SHAK)/.14
• (SCTY)/-2.48
• (SPWR)/.44
• (TASR)/.07

Economic Releases
10:00 am EST

• Final Wholesale Inventories MoM for September are estimated to rise +.2% versus a prior estimate of a +.2% gain.
• Final Trade Sales MoM for September are estimated to rise +.5% versus a prior estimate of a +.7% gain.    

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory gain of +1,332,100 barrels versus a +1,442,000 barrel gain the prior week. Gasoline supplies are estimated to fall by -1,590,000 barrels versus a -2,207,000 barrel decline the prior week. Distillate inventories are estimated to fall by -2,055,400 barrels versus a -1,828,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise by +.43% versus a -.4% decline the prior week.
  

Upcoming Splits 

• None of note

Other Potential Market Movers

• The Fed's Williams speaking, Fed's Kashkari speaking, $23B 10Y T-Note auction, USDA WASDE Crop report, weekly US retail sales reports, weekly MBA mortgage applications report, Australian inflation report, RBC Tech/Internet/Media/Telecom Conference, (SYK) analyst meeting, (STZ) investor meeting and the Wells Fargo Tech/Media/Telecom Conference could also impact trading today.

BOTTOM LINE:  Asian indices are sharply lower, weighed down by industrial and technology shares in the region. I expect US stocks to open sharply lower and to maintain losses into the afternoon. The Portfolio is 50% net long heading into the day.