Early exit polls in the first round of the French election show that centrist Macron is in the lead and Far Right Le Pen is in 2nd. The live count (not completed) right now shows Le Pen in 1st and Macron in 2nd. Sometimes exit polls are more accurate than the live count because exit polls sample all polling stations.
Regardless, it’s clear than Round 2 of the French election will be between Macron and Le Pen. Macron is almost guaranteed to win. Centrist voters will vote for Macron, most leftist voters will vote for Macron, and only the far right will vote for Le Pen.
We cut our S&P 500 ETF positions on Friday’s close in case the far right Le Pen and far left Melenchon won the first round. Both of these candidates wanted to discuss leaving the EU. Their victory would have caused global stock markets to crash in the short term, just like Brexit and Trump’s election last year.
But now that this fear is over, the future is bright and beautiful.
As we’ve mentioned consistently on this blog, the U.S. and global stock markets’ fundamentals are sound. The global economy is growing nicely and corporate earnings are growing as well. Over the medium-long run, the stock market follows the state of the economy and corporate earnings. Click here and here.
What we plan on doing
With these French fears out of the way, we plan to buy back our UPRO (3x S&P 500 ETF) ASAP. We’ll buy enough S&P 500 futures tonight at 6pm EST to be the equivalent of being 3x long the S&P 500. Then we’ll switch those S&P 500 futures or UPRO tomorrow morning in pre-market trading.
Did we do the right thing in selling our S&P 500 ETF’s?
Yes. The futures market is not open yet, and perhaps the S&P will jump 1-3% on the open. But going into all cash was the right choice.
The outcome of this election really was a toss up. No one could predict the results because the polls were all so close.
Had the far left and far right candidates won, the short term effect would have been a mini-crash like Brexit or Trump’s election last year. But the medium-long term effects would have caused stock prices to rise more slowly. An EU that’s disintegrating slowly would not have been bullish.
This French election was important in another aspect. It shows that Europe prefers the establishment more than the UK or America does. The UK and the U.S. have far more “cowboys” (anti-establishment voters). France, the Netherlands, and Germany don’t. The medium term political uncertainty around the world has disappeared.
*Germany has an election in August/September 2017. This election is now irrelevant because the EU is not at risk of slowly disintegrating.
What to focus on
After a long year, investors can finally focus on the fundamentals and the economy once again. The fundamentals are all bullish for stocks right now. Sure, small corrections and pullbacks will happen along the way. But our models do not state that big corrections or a bear market will happen any time soon.