Gold Silver Reports — U.S. stock futures rose, as early polls reinforced speculation the U.K. voted to remain in the European Union.
Contracts on the S&P 500 Index pared gains to 0.3 percent at 6:56 p.m. in New York, after earlier increasing as much as 0.7 percent. The underlying gauge rose the most in a month Thursday. The equity benchmark closed within 1 percent from a record, a level it hasn’t surpassed in 13 months, amid anticipation Britons would reject EU secession, a threat that has rocked financial markets for two weeks.
U.S. Stock Futures Rose
A YouGov poll indicated support for remaining part of the 28-nation bloc stood at 52 percent. First results are expected around 7 p.m. New York time, and the final ones are due at about 2 a.m. on Friday. Polling before the referendum had indicated a vote too close to call. The U.K. Treasury, the International Monetary Fund and others had warned that a so-called Brexit risked jobs, incomes, a plunge in the pound and damage to the nation’s economy.
“It’s encouraging that futures are continuing to ride the wave,” said Alan Gayle, a senior strategist at Atlanta-based RidgeWorth Investments, which has about $37 billion in assets. “The financial markets are experiencing relief that the huge cloud hanging over them appears to be passing by without creating any havoc. This is one thing they won’t have to worry about if the results match the polls.”
While the S&P 500 is up about 0.8 percent in June, trading has been volatile. The gauge careened lower when momentum mounted for the Brexit camp, only to reverse course when the “Remain” side showed signs of winning.
That could change quickly, according to Bank of America Corp. strategists led by Savita Subramanian. A vote to remain in EU would weaken the dollar and boost crude prices, spurring a 3 percent to 4 percent rally in U.S. stocks, she wrote in a note prior to the referendum. Such a gain would push the S&P 500 past 2,160, giving it the first record since May 2015.
Financial companies should benefit if the latest polls prove correct because a vote to stay would reduce global risks and cause bond yields to climb, according to a June 23 note by BMO Capital Markets. Banks in the S&P 500 led gains out of 24 groups on Thursday, posting the steepest one-day rally in five weeks.
For Peter Tchir, head of macro strategy at Brean Capital LLC, a surge in protection against market calamity prior to the vote may force investors back into riskier assets. The CBOE Volatility Index surged 49 percent this month through Wednesday, while tumbling 19 percent on Thursday for the largest decline since 2013.
“The downside is protected and you have that real potential for a squeeze that could take us to all-time highs,” Tchir said in an interview on Bloomberg TV’s <GO> Thursday before voting was finished.
While the vote has hung over investors worldwide for weeks and spurred rampant hedging in the U.S. options market, its resolution won’t necessarily be a panacea for the economic and valuation ills that have plagued American equities for more than a year. The S&P 500 is stuck in its longest period without a fresh all-time high since the bull market began in March 2009, held back by the withdrawal of Federal Reserve stimulus, a four-quarter decline in corporate profits and price-earnings ratios that are close to a decade high.
Those worries were roused last week after the Fed signaled less optimism on the economic report, scaling back its projections for the pace of future interest-rate increases amid concerns about slower job growth and the U.K.’s potential EU exit. In testimony to lawmakers this week, Fed Chair Janet Yellen indicated a cautious and uncertain view of the economy.
The removal of the Brexit threat has raised the specter that the Fed may be more emboldened to raise interest rates. Traders were now pricing in even odds of a rate increase in December, drawing closer after the probability was pushed out beyond February 2017 last week. — Neal Bhai Reports
