Vive la France!
Investors around the world cheered the French presidential election results. The hope is that the centrist candidate Emmanuel Macron will have no problem defeating the anti-EU challenger Marine Le Pen in a runoff election on May 7.
Stocks soared in Europe and were set to pop in the United States as well. The Dow rose more than 200 points Monday morning, a gain of about 1%.
Many market observers had worried that Le Pen, much like U.S. President Donald Trump, could wind up defying the odds and win in France.
There were also fears that far-left candidate Jean-Luc Mélenchon could pull off an upset and that the final presidential race would be between him (not Macron) and Le Pen.
“Voting outcomes have developed a habit of surprising people lately,” said Paul Simons, portfolio manager with the BMO Pyrford International Stock Fund. He was referring to both Trump as well as the U.K.’s Brexit vote.
“The good news here is that there aren’t two candidates that are anti the euro and EU,” Simons added.
And even though Le Pen is moving on to the runoff election, she still faces a big uphill climb since she is far behind Macron in the polls in a head-to-head race. Other candidates in France who lost this weekend have also quickly moved to back Macron.
“The French elections gave the markets a sigh of relief,” wrote Chuck Butler, managing director with EverBank Global Markets in a report Monday morning. “A lot of the risks that were associated with the French election have been put on the back burner.”
The S&P 500 and Nasdaq were up 1% as well. The Nasdaq, home to top tech stocks Apple, Amazon and Facebook, is at a record high and within spitting distance of topping the 6,000 level for the first time.
Another reason investors are in a good mood? Trump promised late last week that a major announcement about tax reform is coming this Wednesday.
Worries about the failure of Trump and Republican leaders in Congress to quickly come up with a plan to repeal and replace President Obama’s Affordable Care Act have quickly faded.
The double dose of good news from France and the U.S. could put the broader market back in rally mode, especially if big companies report strong earnings this week.
Caterpillar, Coca-Cola, McDonald’s, AT&T, Ford, GM, Microsoft, Amazon, Google owner Alphabet, Exxon Mobil and Starbucks are among the many blue chips that will report their latest results and give outlooks for the rest of 2017 this week.
Investors are clearly less nervous about the global outlook. The VIX, a measure of volatility that is often dubbed Wall Street’s fear gauge, plunged 20% Monday morning, a sign that people are growing more bullish.
CNNMoney’s Fear & Greed Index, which looks at the VIX and seven other indicators of market sentiment, finished last week in Fear mode. But the index moved closer to Neutral territory on Monday as investors’ worries about global politics ebb.
Still, investors will continue to nervously watch France until the May 7 election. Monday’s gains could evaporate if Le Pen starts to gain momentum.
Mohamed El-Erian, chief economic adviser with Allianz, said that investors “are looking forward to the likelihood of a Macron win in two weeks, but are yet to overcome the uncertainty that comes with this anti-establishment moment in time.”
