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Morning Commentary: Preferreds drop in wake of election upset, but market seen ‘OK’ with the vote
By Stephanie N. Rotondo
Seattle, Nov. 9 – It was a “crazy morning” for the preferred stock market on Wednesday, a trader reported.
The trader noted that the “market seems to be OK” with the fact that Republican presidential candidate Donald J. Trump won the election on Tuesday, despite most polls showing Democratic candidate Hillary Clinton leading going into voting.
The trader noted that the long bond was down 3.5 points and that the Dow Jones industrial average was “bouncing back and fourth between positive and negative.” The Wells Fargo Hybrid and Preferred Securities index was down 69 basis points at mid-morning, though it was down over 80 bps earlier in the session.
While there are a lot of unknowns about a Trump presidency, the market is speculating that his proposed corporate tax cuts would be good for issuers, making DRD-eligible issues cheap.
Chatter also has it that an interest rate increase from the Federal Reserve next month is still in the cards.
Trump has also said he would ebb the tide of regulations, which the market is “viewing as very strong for housing.” As such, Fannie Mae and Freddie Mac preferreds were getting a sizable bounce.
The trader also noted that there is some hope that Trump will look to recapitalize the agencies, instead of allowing the Treasury Department to commandeer most of the GSEs’ profits.
Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) were up 95 cents, or 22.89%, at $5.10, while Freddie’s 8.375% fixed-to-floating rate noncumulative preferreds (OTCBB: FMCKJ) were up 70 cents, or 17.07%, at $4.80.
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