Shift Into Higher Gear

• US stocks continued their upward momentum to close at records on Friday.

• The S&P 500 gained 0.4% to notch a new record, after surpassing the 6,000 threshold during the session.

• The best-performing sectors were utilities, real estate, and consumer staples, while materials lagged.

• Tesla’s stock jumped 8.2% to $321.22, as the company achieved a trillion-dollar valuation for the first time in over two years.

• Axon Enterprises soared 28.7% after raising its revenue guidance.

In advance of the presidential election, there was a significant amount of worry about when election results would be known and if a transition of power would go smoothly.

• Hedge funds significantly reduced market exposure (risk) in the weeks before the election.

• Long-only clients of major investment banks sold billions worth of stock last week, the largest weekly sale year-to-date.

• Many institutional money managers came into election day under-invested.

Pre-election anxiety can be seen in the CBOE S&P 500 Index (SPX) Volatility measure (VIX). Essentially, the VIX measures put options (downside protection) bought on the S&P 500 Index.

In the days coming into the election, the VIX was elevated (red arrow). On the day following the election, the VIX fell 26% (blue arrow) back towards more normal levels in the mid-teens.

The combination of election unknowns being removed from the investment equation and money managers needing to play catch-up in a rising market adds further buying pressure to the bull market and a year-end rally.

Although difficult to quantify, there is a reasonable probability that many investment projects in the “real” economy were delayed until management teams knew election results.

With the election behind us, we may see both the economy and the stock market shift into a higher gear.