Futures Explode Higher, Nadaq Briefly Halted As Odds Of Reflation Trade, Contested Election Collapse

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by Tyler Durden
Tuesday, Nov 03, 2020 - 10:38 PM

It was supposed to be a Blue Wave... and if not a Blue Wave then at least a landslide victory for Joe Biden over Donald Trump. Well, not only is that not likely to happen, but suddenly it seems that Trump may be a decisive winner and not need Pennsylvania, with Betfair odds now 70% in his favor.

So what does that mean for a market that had almost entirely priced in a Biden/Blue Wave victory? Well, as we noted on Oct 31, when we pointed out the collapse in Nasdaq shorts, we said that a surge in the Nasdaq was imminent as the so-called dumb money reversed.

Fast forward to today, when this expected short squeeze has unleashed a massive Nasdaq explosion which sent the tech index 4% higher...

... at which point it was briefly halted as circuit-breakers were triggered.


Technicals aside, there are two fundamentals reasons for this explosion higher:

  1. The lack of a Blue Wave means that no massive reflation trade is coming, and so instead we will get a re-deflation rotation, which is great for Treasurys and for growth/duration stocks such as tech.
  2. The removal of concerns about a contested election, means that all of the crash protection that traders had accumulated for just such an eventuality, will be unwound and stocks surge, which is precisely what they are doing on Tuesday night as in addition to NQs, the Emini is also exploding higher.

Bloomberg's Stephen Spratt notes 4 more reasons for the mindblowing explosion higher in the Nasdaq:

  1. The Democrats have pushed anti-competitive regulation for years. Just last month, a Democratic panel issued proposals to break-up tech giants. The chance of this happening just got marked down.
  2. Chance of Biden tax increases just went down, while for a Trump tax cut, they just went up.
  3. With the Ant IPO on hold, where’s that money going? Some suspect it can potentially go straight back into tech names for the short-term.
  4. Lastly, a Trump win would mean an ‘as you were’ approach to investing, allowing further Nasdaq outperformance.

Meanwhile, since a pro-China Biden administration is not coming, the Yuan is plunging as the odds are now that we are facing 4 more years of escalating trade war with China.

Finally, after tumbling early as a result of the surge in the dollar, gold has recovered much of its losses, as no matter if it's Trump or Biden, one thing is certain: much more fiscal stimulus is coming, and even more dollar debasement is just around the corner.