Reflation trades fade as divided government becomes the base case. 

Joe Biden won, but he certainly didn't hang a 10 on a Blue Wave. The republicans seem to have held onto their Senate majority, results from Tuesday's election significantly lowered the odds of a unified Democratic sweep. 

There is only a 20% chance of a Democratic Senate(down from nearly 60% heading into the election). As a result, institutional pros outflowed several trades that had hinged on an election-driven reflation theme, given the likelihood of smaller fiscal stimulus. 

Now the market is expecting a materially smaller Phase 4 fiscal deal(less than $1 trillion versus the $2.5-3 trillion possible on a Democratic sweep) and limited expansion in longer-term priorities such as infrastructure. 

Moving forward, markets are likely to trade with a divided government baseline while news on the public health trajectory and vaccine development should take over as a key driver for markets into year-end. 

So, expect market would be more cautious in reprising that anticipatory repricing this time around that at least to year-end! 

Notable bettings toward broader market indices ETF on 11/6

Market-wide option volume of 33.7m contracts was 18% above recent average levels, with calls leading puts 14 to 9. Single stock and Index products saw relatively heavy volume, while ETF flow was moderate.

Individuals breakdown by sectors (11/6 notable bets)

Most active sectors included Health Care, Consumer Goods and Basic Materials while Industrials and Telecommunications were relatively light. Of the 3,616 stocks with listed options, 1,204 (33%) closed higher, and 2,166 (60%) lower. Among the 500 most liquid single stocks, 30day implied volatility was lower for 344 and higher for 116.

Tech

Industrial

Consumer Cyclical

Financial

Communication Services

Healthcare

Energy

Real Estate

Basic Materials

Consumer Defensive

Utilities