Investment Brief: First Round of French Election Eases Market Fears

Anti-globalist and anti-establishment sentiment continues to add to political and capital market uncertainty. After Brexit and the U.S. presidential election, the world is closely watching the French presidential election, as it is considered to be the defining moment for the future of the European Union (EU) and the Euro as a single currency. Investors are particularly concerned with the popularity of Anti-EU far-right presidential candidate Marine Le Pen, who promised to put a referendum in place triggering France to leave the European Union. Eleven candidates, with views ranging from the far-right to the far-left, promised policies that would directly affect European Markets, making this election of interest well beyond France. 

As the first round of the presidential election concluded on Sunday, capital markets cheered as Pro-EU centrist candidate Emmanuel Macron advanced as the favorite in a run-off over nationalist Marine Le Pen. Macron won the first round with 23.8% of the vote, ahead of Le Pen at 21.5%.   Presidential elections in France employ a two-round system; if no candidate achieves more than 50% of the total vote in the first round, then the two candidates with the most votes face-off in round two. The second-round of France’s election will take place on May 7, and the latest polls show Macron winning with 62%of the vote (with Le Pen at 38%). Many feared that if Le Pen advanced with the majority of votes the market shock would spark a European stock sell-off similar to the shock after Brexit. 

The results of this weekend’s vote and Macron’s increasing poll numbers sparked a risk-on environment in equity markets globally. Since Monday morning, the European stock market surged to a 17-month high. Bank shares were the biggest winners, as they would have been the most vulnerable in the event of a Le Pen victory. Domestic equity markets rallied as well, with the Dow Jones Industrial Average rising by 200 points early on Monday, and the Nasdaq Composite climbed 1%, putting the index on track for a new record. The CBOE Volatility Index (VIX), a measure of anticipated stock market volatility, sometimes referred to as the “fear gauge,” fell 23%.  The Euro also climbed, compared to the U.S. Dollar, while safe haven instruments such as gold and Treasuries fell. 

Note: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.

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