S&P 500; US Indexes Fundamental Forecast – November 7, 2016

U.S. equity markets are expected to open sharply higher on Sunday/Monday as investors react positively to the news that the FBI has ended its renewed probe of Hillary Clinton’s email servers without issuing any new charges. As far as the markets are concerned, it looks as if the case is closed and it will be business as usual ahead of Tuesday’s election.

Although there is always some risk going into any election, traders are likely to react positively to the news with means Monday will be a “risk on” day in all the major indices.

Last week, December E-mini S&P 500 Index futures lost 2.06%. The December E-mini Dow Jones Industrial Average lost 1.62% and the December E-mini NASDAQ-100 Index lost 3.08%. Portfolio managers took protection against a possible win by Republican candidate Donald Trump in Tuesday’s election. The moves were sparked by an FBI probe of Clinton’s emails while she was the secretary of state.

When the news broke on October 28, Clinton was ahead in the polls by 5 points. Last week, according to some polls, the lead dropped to about 1.5 points. With today’s news, Clinton’s lead is likely to jump back to at least 5 points.

Volatility is expected to remain high as investors will be forced to cover aggressive short positions and buy back put options, purchased as portfolio protection. All of this should lead to big rallies in the major indices.

Traders should expect the major indices to take back at least 50% of last week’s declines.

In economic news on Monday, the U.S. will release the Labor Market Conditions Index, the Loan Officer Survey and the Consumer Credit report.

After the initial rally, fueled by the breaking news, traders should look for the major indices to settle into a range ahead of Tuesday’s election.

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