Volatility Evaporates as Election Drives Relief Rally

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Stocks are enjoying a healthy rally today as the uncertainty of mid-term elections fades.

With so much going on, let’s just hit on a few key takeaways.

First, health care is leading the rally after Democrats won a majority in the House of Representatives for the first time in eight years. That’s potentially good news for an industry that profited hugely from the Affordable Care Act (Obamacare) — the party’s last major piece of legislation.

Another positive for health care was the approval of ballot initiatives for the expansion of Medicaid in Idaho, Nebraska and Utah. Given that these are mostly Republican states, it suggests President’s party will be more amendable to public spending on the sector.

As of the mid-afternoon, six of the S&P 500’s top gainers today are health-care stocks. Dialysis provider DaVita (DVA), beneficiary of its own piece of good news in California, is leading the charge.

Volatility Index (VIX), showing one-day changes in points.

Second, it’s a classic example of how volatility fades when uncertainty passes. It’s usually true for earnings and events like drug trials. It also applies to elections.

Third, let’s dig into the “tech” and “growth” segments of the market. The biggest names like Amazon.com (AMZN) and Netflix (NFLX) are jumping about 5 percent — not a huge surprise. But Facebook (FB) is up less than 1 percent, and many chip stocks have risen even less.

Meanwhile, software companies are jumping, led by Workday (WDAY), Microsoft (MSFT) and Adobe (ADBE). This is consistent with the pattern highlighted on Market Insights at the end of the summer.

Biotechnology is also gaining today. While not tech names like MSFT, they are “growth stocks” and Nasdaq members. They also benefit from the broader shift toward health care mentioned above.

Finally, we have some potential levels. Monday’s Market Action cited the 2800 area as a near-term target for the S&P 500. It was a peak from mid-October that the bulls are now testing. Will profit takers step in soon?

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David Russell is VP of Content Strategy at TradeStation. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.