Just about everybody seems surprised, this morning. Those who were rooting for Clinton are, of course, surprised that their candidate lost. Those who were rooting for Trump are surprised that the election wasn’t more effectively rigged. Those who didn’t vote are, no doubt, surprised that their vote might have mattered after all.
The one thing there should be no surprise about is the degree to which the “market” was managed. As we discussed on Monday in The Wheel’s Spinning:
For the record, I consider it extremely presumptuous that the election risk is over and done with. To repeat what I mentioned earlier, we saw the exact same thing happen with Brexit. Knowing the downside risk, TPTB ran equities as high as they possibly could before the vote. The subsequent downturn, thus, started from a much higher level.
Monday and Tuesday were, obviously, an echo of the Brexit runup — with a runup that barely paused along the way to a 64-pt gain from Friday’s lows.
It’s not such a big deal to lose 50-100 points if it’s from 64 points higher in the first place. And, that’s exactly what we’re seeing this morning — except that TPTB learned another lesson from Brexit. The damage control has been so effective overnight that the futures have already bounced 73 points off their overnight lows.
One tool, VIX, is lower in the face of what is still a 25-pt drop in the S&P 500 futures. As futures were plunging last night, VIX put in a preposterous 26% decline!
The world has changed. Investors will care. The question is whether VIX and the other tools central banks have at their disposal will be enough to prevent serious fallout as they did with Brexit.
With that in mind, we’ll take a look at the prospects of our downside targets playing out.
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