US elections, Oil and Stocks

The uncertainty over the US presidential election, stronger dollar and fall in the price of oil on Tuesday led to a sub-standard start to earnings season as all three major US indices suffered a greater than 1% drop, with the Nasdaq plunging the most at 1.54%.

The probaility of a Trump victory has fallen drastically within the last 14 days following two poor debate performances coupled with a video from 2005 being released of Trump making drerogatory remarks about women. This can also be highlighted in the latest polls, showing  Clinton now has an 11% lead over Trump. According to Goldman Sachs, the increasing probability of a Hilary Clinton victory, who has less contentious policies on trade and immigration, has boosted the probabilty of a December rate increase to 75% from 65%. Furthermore, Charles Evans, the Chicago Fed president hinted in a speech in Australia that we should expect a rate hike soon, this caused the dollar to hit its highest level since July, with the dollar index up 0.5% on the day. It is extremely likely both the high probability of a rate hike and the stronger dollar led to the huge sell off in US Stocks on Tuesday as firms face the prospect of higher wages, borrowing costs and a fall in consumer spending.  Furthermore, the performance of Trump is believed to be having negative implications for all the Republicans running for Senate and Congress. The Democrats are expected to reclaim some seats, although probably not overall control. The increased possibility of a Democratic house and their less business friendly possibilities is weighing on stocks.

Oil prices also fell this week after the International Energy Agency announced global supplies rose in September. Furthermore, Igor Sechin, the Head of Rosneft, told Reuters that his company (which accounts for approximately 40% of Russia’s crude oil output) will not cap their oil production. In response to these announcements West Texas Intermediate for November closed 56 cents lower at $50.79 US per barrel, down from its highest close since July 2015 the previous day. As the S&P 500 has a 6.8% exposure to the enrgy sector it is likely that the severe fall in the price of oil yesterday contributed to the slide in the US Indices.

Picture from Gage Skidmore, via flickr

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Reuters: Business News