FBI probe of new Clinton emails spooks market
Election angst is back on Wall Street.
Stocks, which had been up after the government said the economy grew last quarter at its fastest pace in two years, closed lower Friday after the FBI said it would review more emails in the case related to Hillary Clinton's use of a private email server while secretary of State, injecting fresh uncertainty into the presidential race.
The news unnerved investors. Wall Street had been pricing in a win for front-runner Clinton, but the latest broadside to the Democrat's campaign could potentially boost Trump's chances when voters go to the polls in 11 days.
"The FBI story gives Trump an opening," says Greg Valliere, chief strategist at Horizon Investments. "Is he adroit enough to exploit it? I still think Clinton's the favorite. (The) more likely scenario is that she enters office with an enormous cloud over her head, not a great story for the markets."
The Dow Jones industrial average, which had been up almost 90 points, closed down 8.49, or 0.05%, to 18,161.19. In another sign of market jitters, a Wall Street "fear gauge," dubbed the VIX, jumped as much as 13% on the FBI news.
The Dow finished the week with a small gain, and looking ahead to next week Wall Street will be watching politics, the Federal Reserve's decision on interest rates, a slew of corporate earnings and the release of the October jobs report.
In a letter to senior lawmakers Friday, FBI Director James Comey said the bureau would review additional Clinton emails that turned up in an "unrelated case" in an attempt "to determine whether they contain classified information." Comey said the FBI "cannot yet assess" if the information in the new emails is "significant," nor could it offer a timetable as to how long the analysis will take.
Markets were repricing election risk in real-time after the email scandal resurfaced.
Trump is viewed more skeptically by Wall Street, largely because of worry that his America-first approach to trade could cause a trade war that could hurt markets. Clinton, despite calls for tax hikes on the wealthy and more regulation of business, is viewed as more of a status quo candidate.
"I think the market is underpricing the risk of a Trump victory," says Mark Luschini, chief investment strategist for Janney, recounting one of two major market risk this political season. The other risk is a Democratic sweep of the White House and both chambers of Congress, as that would pave the way for a full mandate for Democats. Wall Street, he adds, much prefers some form of political gridllock.
The re-emergence of the email issue raises fresh questions about whether Clinton's road to the White House will be derailed.
"Anything that calls into question what seems to be the inevitable election of Hillary Clinton will cause volatility in the market; however, like most event-driven risks, volatility will abate rapidly as more information becomes known," says Jamie Cox of Harris Financial Group.
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The latest twist in what has been an unpredictable campaign overshadowed the good news on the economy.
U.S. gross domestic product, or GDP, jumped 2.9% in the latest quarter, topping expectations and rebounding sharply from a pace of about 1% in the first half of the year. It was the strongest growth since the third-quarter of 2014.
"This shows that the U.S. economy is roughly on track," says Luke Bartholomew, fixed income investment manager at Aberdeen Asset Management.
Economy grows at fastest pace in 2 years as GDP rises 2.9% in Q3
The good news on the economy coincides with an improving picture related to corporate earnings. Third-quarter profit growth for the broad Standard & Poor's 500 stock index is now estimated at +3%, according to earnings-tracker Thomson Reuters. The third-quarter results, if they finish positive, would end four quarters of contracting profit growth, and mark an end to the earnings recession that has dogged Wall Street since the middle of last year.