Why Did The Market Rally?

The media was anticipating a Democratic sweep during these elections… the markets followed the predictions.

This means the polls were not only predicting the Democratic nominee and former vice president Joe Biden would take control of the White House, but the markets were also predicting that the Democrats would take control of the Senate.

That outcome is looking significantly less likely. As things stand right now, the presidential election is still too close to officially call, but the control of the Senate and the House looks to be staying right where they are.

So what is the cause for the markets to surge higher?

Heading into the election, hedge funds, money managers, and other high net worth investors were all positioning their investments for a fully democratic government. The main hedge was to protect increased regulation against the technology sector.

A blue wave win would also mean we could expect massive spending by the government. Reports were as much as $5 trillion worth of stimulus should be expected by the first quarter of next year. In addition, a fully democratic government would pave the way for a strong stance on green energy.

These positions are now starting to unwind…

As probable as the polls made it seem a Biden win accompanied by a Democratic sweep was likely, that is not expected to happen now.

I recall back in 2016 when Hillary Clinton had a 90% chance of defeating Republican nominee Donald Trump in the race for the White House according to the polls. I wasn’t going to make the same mistake by listening to the polls this time with my options trading strategies…

The fact is, whether you like Donald Trump or not, it’s a very unpopular opinion to admit to being a Trump supporter. It’s not for us to judge anyone’s political views, but one thing is for certain, many of the Trump supporters don’t necessarily want to admit that they’re Trump supporters. This is why it was so difficult for the polls to get it right in 2016, and once again have such a hard time in 2020.

Now we have a situation where technology stocks rallied hard due to the likelihood of less regulation within the sector, as well as the probability of increased taxes being lower. Green energy names that rallied going into the election pulled back today due to a lower probability of a supportive government.

Of course, the final outcomes have yet to be determined, the markets could change on a dime just like they changed today if the outcome becomes less clear. It’s important to remember the democratic process isn’t finalized until its final. But going with the current counts and the probabilities as they appear right now, it looks like the blue wave chances are all but over, which explains today’s market activity.