Wall Street had wanted a divided legislature where a red Senate and a blue House checked and balanced each other on business related issues. What investors get today is a Democrat-dominated Congress. The reaction is a sell-off in stocks across the board, especially in sectors viewed by investors as likely targets of heavy scrutiny by Democrats – pharma, defense, oil, which is spared a rout only by the rally in oil prices.
However, there were some signs that the run-up this week was about to be snapped. As the indices rallied over the past three days, volume on the Big Board (NYSE) and on the Composite (Nasdaq), in particular, decreased progressively. A combination of higher peaks and lower volumes often indicates that a rally is losing steam.
Volume today is unusually high though, which suggests that tomorrow may see another sell-off, perhaps more restrained. Having said that, I don’t think the negative reaction to a Democratic Congress will last, after all there is still a Republican White House to deal with.
In folio action ADBE announces a management shake-up after the closing bell, which sends the stock further down. The stock is going to be under pressure from tomorrow until it’s clear why the CFO, who had held the post for only five months, suddenly resigned. The pull-back in ADBE will create a rare buying opportunity though. I may get my hands on some.
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