Countdown to Armageddon: a deferral

Yo Griff get the green black red and
Gold down countdown to Armageddon

             - Public Enemy, Don't Believe the Hype

In some quarters, it's felt as if the clock has been ticking a countdown to...well, if not Armageddon, something a bit worse than a spot of indigestion.  If we take the results of last week's poll at face value, the purest measure of Trump's candidacy - USD/MXN- gave him a 38% chance of winning as of Wednesday's close and just nudged 50% at its peak on Thursday.  The news that the FBI news is not, in fact, news has sent dollar/peso plummeting, and at the time of writing is now pricing less than a 20% chance of a Trump victory, though price action is understandably erratic.

The SPX, of course, has famously declined 9 straight days for the first time since 1980.   This is one of the longest losing (or winning) streaks on record since Bloomberg's synthetic data began in the early 1920's.

It seems almost certain that James Comey's admission that there is no reason to prosecute Clinton on the basis of the Weinergate emails would tip at least some voters the Democrat's way, though given the prevalence of early voting in some states the die to some extent has already been cast. (Incidentally, when did early voting become such a big thing?  Before 2012 the last presidential election that Macro Man was present in the US for was 1988, and it wasn't a thing back then.   Also, he's never resided in a state where it is legal.)

While it would appear virtually axiomatic that the market should enjoy a big relief rally today, how much should we really expect from a possible escape from "Armageddon."   After all, using the poll outcome results for the SPX suggests that the market only priced a 1 in 3 chance of a Trump victory as of Friday's close.

Moreover, even though the equity market fell consistently over the last couple of weeks, it didn't actually fall very far.   Indeed, over the entire 9 day losing streak the SPX only fell by a little more than 3%.  That's less than every other 9 days-plus losing streak in the Bloomberg database except one, which matches it.

So if the market didn't fall very far on worries about a Trump victory, should it really rally that much on hopes of a Trump defeat?   Probably not, particularly given the perceived risks of a surprising and/or contested result.  After all, oil has still gone ropy again, with concomitant possible implications for credit.  And lest we forget, payrolls did nothing to dissuade the Fed from moving next month; if anything, the panoply of data suggested a closer approach to full employment (what with the rise in wages, etc.)   With the market only priced for one and a half hikes by the end of next year and the bar fairly low for upside inflation surprises relative to the Fed's own forecasts, there remains ample opportunity for policy outcomes that remain less than equity favourable.

After all, just because Armageddon is deferred doesn't mean you go straight to Nirvana....