French Election Fires Up Wall Street, Propels Stocks to Best Gains Since Early March

France's position in the European Union looked a little more secure on Monday following the first round of voting in the French presidential election. A vote for the status quo lit a fire under European markets and led to Wall Street's best day in nearly two months. 

The S&P 500 was up 1.08%, the Dow Jones Industrial Average added 1.06%, or 216 points, and the Nasdaq climbed 1.2%. The Nasdaq opened at a new record on Monday, while gains pulled the three indexes into the green for April. Stocks saw their largest gains since the beginning of March. 

Centrist Emmanuel Macron won the first round of the country's presidential elections over far-right Marine Le Pen. Macron and Le Pen will proceed to a presidential runoff after winning 23.75% and 21.53% of the weekend vote, respectively. The run-off for the country's presidency will be held on May 7. Polls suggested Macron holds at least a 20-point lead over Le Pen heading into the second round.



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Macron's first-round win was seen as a victory for the European Union with the candidate likely to keep France in the bloc. Anti-European Le Pen would likely negotiate an exit from the EU, similar to what the United Kingdom is currently undergoing. 

European markets were also sharply higher on Macron's win. The CAC 40 in France surged 4.1%, putting stocks at a nine-year high, while Germany's DAX added 3.4%, and the FTSE 100 in London rose 2.1%. BNP Paribas (BNPQY) , France's biggest lender, rose more than 9% on French markets Monday, while Credit Agricole (CRARY) and Societe General  (SCGLY)  also posted healthy gains. U.S.-listed shares of Deutsche Bank (DB) rallied 11%. The U.S.-listed iShares MSCI France Index ETF (EWQ) roared more than 5% higher. 

"Relief: That is the word that basically describes the sharp moves in the markets today," said Fawad Razaqzada, market analyst at Forex.com, in a note. "The threat that a Eurosceptic leader will preside over France has therefore diminished sharply. However, the prospects of an unlikely victory for Le Pen remains and that may dampen the enthusiasm expressed by investors today."

Consumer staples stocks were the best performers on Monday, followed by financial names. Big gainers included Anheuser-Busch (BUD) , Coca-Cola (KO) , Phillip Morris (PM) , PepsiCo (PEP)  and Unilever (UL) . The Consumer Discretionary SPDR ETF (XLY)  rose nearly 1%. 

Halliburton (HAL)  exceeded analysts' quarterly estimates on strength in its North American activity to start the year. The energy services company reported a loss of 4 cents a share over the quarter, far narrower than a loss of $2.81 a share a year earlier. Adjusted earnings of 4 cents a share came in a penny higher than expected. Revenue climbed 1.4% to $4.28 billion, largely in-line with estimates. Company President Jeff Miller said he is "excited by the activity I see in North America and confident in our ability to manage through any challenges in the international markets."

Toymaker Hasbro (HAS) climbed 5.9% following an improved first quarter. Net income of 54 cents a share grew from 38 cents a share in the year-ago quarter. Analysts anticipated earnings to hold flat at 38 cents a share. Revenue in the U.S., which accounts for more than half of the top-line, rose 2% to $451.6 million thanks to growth in gaming sales. Overall revenue of $849.7 million exceeded analysts' target of $818.3 million. 

Kimberly-Clark (KMB)  reported a rise in net income, though adjusted earnings and sales came in below Wall Street estimates. First-quarter net income rose to $1.57 a share from $1.50 a share in the same quarter a year earlier. Adjusted earnings of $1.53 a share missed consensus by a penny. Sales came in flat at $4.48 billion, falling short of a rise to $4.49 billion. Kimberly-Clark anticipates full-year sales growth of just 1% to 2%.

So far, one-fifth of S&P 500 companies have reported on their quarters. Of those, 77% have beat earnings estimates, above the average beat of 64%. Analysts anticipate blended earnings growth of just over 11%, according to Thomson Reuters.

Amazon (AMZN) added nearly 1% after Wedbush Securities issued a bullish note on the stock. Analyst Michael Pachter increased his price target to $1,250, the highest of any Wall Street analyst, arguing that the company will likely see "substantial earnings growth." In a note, Pachter said the company "appears intent upon growing annual profits (with some quarterly volatility), which we expect to continue as the company invests in growth." Pachter also said Amazon Web Services will likely drive the bulk of growth. The online retailer is set to report on its recent quarter on Thursday. 

Immune Pharmaceuticals  (IMNP) slumped 20% on Monday after announcing restructuring plans and receiving a warning from the Nasdaq that it was non-compliant with listing requirements after failing to file its 10-K for 2016 on time. Immune said on Monday that it plans to absorb its oncology unit into its Cytovia business, which could then be spun off into a separate company. 

Groupon (GRPN) stock was downgraded to underweight from equal weight at Morgan Stanley on Monday. Its price target was also lowered to $3.50 a share from $3.90. Analysts noted the company is lacking advertising demand. 

Whole Foods (WFM) added 2% on Monday afternoon on reports Albertsons had held talks concerning a possible bid. The Financial Times reported that the two have held preliminary talks, though no formal offers has been made. 

Becton Dickinson  (BDX)  reached an agreement to acquire medical technology peer C.R. Bard (BCR)  for $24 billion, the largest-ever deal for the 120-year-old buyer. Shares of Bard rose 19%. 

Congress will scramble to avoid a government shutdown this week by pushing through a continuing resolution. Negotiations likely will intensify on Friday ahead of the deadline at midnight, April 28. Office of Management and Budget Director Mick Mulvaney has said that money for President Trump's proposed border wall must be part of the spending bill Congress will look to pass, a major conflict for Democrats in opposition of the expensive project.

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The French election is a big deal — and it has more than one scary outcome for markets

France's presidential election is a major test for euro zone unity, and the first round Sunday could bring on intense market volatility, depending on which candidates make it to the final leg of the race.

French stocks closed down 1.6 percent Tuesday, after recovering from the worst intraday selloff since the U.K. voted to leave the European Union last June. Investors globally have been hedging ahead of the vote by piling into safe haven assets like U.S. Treasurys and gold, and buying yen against the euro.

"I think it's potentially huge, or it could be nothing, and we'll know that Sunday night before the market opens," said Andrew Brenner, global head of emerging market fixed income at National Alliance. He said the spread between French and German 10-year bonds continues to widen, a signal of market unease.

The big fear is that far-right National Front candidate Marine Le Pen will win, since she has run on a platform to divorce France from the euro — an action that could threaten the future of the entire euro zone. As it stands now, there is a good chance Le Pen will emerge from the first round pitted against one of three candidates: far-left candidate Jean-Luc Melenchon, conservative Francois Fillon and centrist Emmanuel Macron, a former economy minister.

"It is true that four candidates are coming all within a margin of error. It is impossible to know for sure whether the French electorate will look at these polls and decide to vote with their hearts or get excited by the underdogs," said Charles Lichfield, associate, Europe at Eurasia Group. "Something we can say is Mrs. Le Pen is most likely of those four candidates to make the second round. They're all between 18 and 22 percent. Ninety percent of Mrs. Le Pen's 22 percent will vote for her."

The candidate favored by markets is Macron, who is expected to beat Le Pen in the final vote. "If it appears Macron is in the race, all of this goes away for the near term," said Brenner.

The disruptive candidate not named 'Le Pen'

However, Lichfield said Melenchon also stands a chance to win. Like Le Pen, he would be considered a disruptive candidate. A fan of Venezuela's Hugo Chavez, he would like to tax individuals who earn 400,000 euros ($430,000) or more at a tax rate of 100 percent. He also would like to renegotiate France's relationship with the European Union, and if it fails, he would seek to leave the EU.

"Depending on how high [Le Pen] is, the market could react quite violently. If her runner-up is 6, 7 points behind her, many people would see that it's possible she wins," Lichfield said. The runoff election is set for May 7.

"You hear people saying if Le Pen gets elected, France pulls out of the euro and the EU collapses. That's utter nonsense. For France to pull out, there has to be a vote of Parliament and they're overwhelmingly against leaving the euro," said Robert Sinche, chief global strategist at Amherst Pierpont.

There is a parliamentary election in June, and it in fact could be the more important election. Le Pen's far-right National Front isn't seen making much in the way of inroads.

   
"I still expect Macron and Le Pen to be in the runoffs," said Marc Chandler, chief foreign exchange strategist at Brown Brothers Harriman. "A lot of people think the French election is about the presidential election. It's also about the parliamentary election in June. The president is a figurehead. The problem is none of the candidates have a strong parliamentary presence. The key to the outcome is going to be the parliamentary elections. Political risk is going to subside, but it can't go away."

Chandler said a Le Pen victory could foster other nationalist groups in Europe, but it could also be a problem for Italy. Germany also has an election later this year.

"The key would be not so much the German election, but the Italian election," he said. Italy, under Prime Minister Paolo Gentiloni, has undertaken steps to provide emergency liquidity guarantees and capital injections for its banks. Former Prime Minister Matteo Renzi resigned in December, after Italy voted down a key constitutional referendum.

Watch: The French right comes out of hiding

The views on how France's election could affect markets diverge as much as do potential outcomes.

Lichfield said he sees a 35 to 40 percent chance for Le Pen to win. He said there are very slight odds, perhaps 10 percent, that financial market chaos erupts after the election. It could be so volatile it would send French yields skyrocketing and hurt the country's banks.

The long-shot scenario could even be extended to consider a French default at which point, France could be forced to leave the euro zone, Lichfield said.

More likely is that European Economic and Monetary Union officials keep the situation under control and panic does not set in. Even so, a Le Pen win would not be a positive.

"It will be negative because there's this now complacent view that Brexit wasn't so bad. Trump hasn't been so bad, so why are we worried about Le Pen? But if you look at what she wants to do, if suddenly the market slowing into what her actual policies are and realize she's right at the center of a vulnerable monetary union, then it becomes much more troubling," said Lichfield.

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