It did not, however, take long for the joyful “gridlock is good” rally to face a reality check. The President’s tweet: “If the Democrats think they are going to waste Taxpayer Money investigating us at the House level, then we will likewise be forced to consider investigating them for all of the leaks of Classified Information, and much else, at the Senate level. Two can play that game!” NYT: “Jeff Sessions is Forced Out as Attorney General as Trump Installs Loyalist.” And then came Friday’s (post-election) barbs from the director of the White House’s National Trade Council:
Wednesday provided a good example of news and analysis following market direction. Stocks were up, so election results must have been positive. I would tend to see Wednesday trading as heavily impacted by the unwind of hedges – and yet another short squeeze. After trading as high as 20.6 in Tuesday trading, the VIX (equities volatility) index ended Wednesday’s session at 16.36, an almost one-month low.
Market weakness in the weeks leading up to the midterms created an unusual backdrop. A pivotal election combined with a vulnerable market backdrop ensured a double-dose of hedging activity heading into Tuesday. And with the election having avoided “tail risk” outcomes (blue wave with Democratic control of both houses, or Republicans maintaining full control), post-election trading saw a significant reversal of risk hedges and bearish speculations.