Daily Agenda: Markets Untroubled as U.S. Heads Toward Election Home Stretch

Equities drift higher as polls suggest Clinton has upper hand; Apple faces big EU tax bill; Mondelez walks from Hershey takeover.

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Patrick T. Fallon

Strategists and pundits have long debated the impact of presidential election cycles on financial markets. The divisive and, outright strange, 2016 U.S. campaign has left many investors scratching their heads, however. A comfortable lead in the polls for Democratic hopeful Hillary Clinton has spurred many analysts to conclude that a continuation of the status quo is likely. While some business leaders abroad have raised concerns over protectionist rhetoric by GOP candidate Donald Trump, his increasingly poor showing in crucial states has alleviated some tensions. Critically, more is at stake than the White House, however. Even if former Secretary of State Clinton is able to keep her lead and win, it is increasingly likely she will face a divided Congress with a GOP House of Representatives intent on blocking her initiatives and obsessed with rolling back the Obama administration’s Affordable Care Act. Markets appear to welcome the increasing likelihood of more gridlock, with the Standard & Poor’s 500 up now by nearly 7 percent year-to-date. Critically, even after a run-up on Friday, the CBOE Volatility Index remains near the lows for the year as few portfolio managers feel the need to hedge their positions.

Apple faces massive tax bill. Today the European Commission ordered Apple to pay up to $14.5 billion in back taxes that it says the U.S. company avoided with the aid of the Irish government. The ruling comes as part of a crackdown by the European Union against member states providing tax deals that constitute unfair advantages for multinational firms. Many U.S. lawmakers have noted that U.S. companies have borne the brunt of these probes. Both Apple and the Irish government said that they would appeal the decision.

Candy merger called off. Confectioner Mondelez International has thrown in the towel in its pursuit of Hershey Co., after the Pennsylvania-based maker of its signature chocolate rejected the second buyout offer since June, ending the possibility of forming the world’s largest candy company. After Mondelez announced it would step away from the deal yesterday, Hershey’s share price fell by more than 10 percent in aftermarket trading. The deal’s unwinding occurs as a shakeup in the board of directors for the trust that controls Hershey is taking place.

Mixed sentiment from Europe. European Commission sentiment data released today painted a portrait of a less confident private sector in August with pullbacks in the headline index as well as business climate and industrial confidence sub-indices. In contrast, business leaders in the U.K. appeared to shake off Brexit blues during the month with a headline reading of 104 versus a prior 102.6. While PMI data released earlier in the month by Markit indicated corporate leaders in the U.K. were cautious while awaiting the full impact of a departure from the EU, other indicators have suggested that the U.K.’s economy remains resilient, particularly on the consumer level.

Employment improves in Japan. Employment data released earlier today by Japan’s Ministry of Internal Affairs and Communications indicates that headline unemployment, at 3 percent, has fallen to a multidecade low in Japan. Despite tight labor conditions, wage growth remains anemic as low consumer spending and a resilient yen drag on growth. In advance of a Bank of Japan policy meeting in September widely expected to result in increased easing, the news is a mixed blessing for officials.

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