A 'will' to fix America's problems - somewhat understandably has taken the back-burner to merely getting through the pandemic. However the solutions to Covid-19 will rapidly switch the focus back to economic revival not merely the careful emergence we've seen. So that's why the Election's aftermath may be a sort of period of reflection: of what have we wrought; or really gained.
This is a tough topic to explore (and tread gingerly); while history reveals how society has recoiled at dramatic upheavals impacting mostly everyone. This is more like the 'Spanish Flu' era than the Great Depression after '1929's Crash'; although there is a permabear crowd calling for such a collapse. (In actuality it is here with respect to a sizeable portion of the population; similar jobless rate and so on; but the bipartisan stimulus trances have helped offset that; and for sure while we don't know 'when' more will be legislated; it's not really an 'if'. It is a Nation living on borrowed time however, muddling-through Covid-19.
Thus our expectations (along with no change in concerns for ensuing limited S&P corrections; somewhat tax-related) persist regarding prospects beyond a catastrophe, and rather 'synchronized global expansion; but it won't be easy. And it especially won't be easy if domestic chaos happens to be the outcome in the wake of what could readily be a contested situation for several weeks.
Some have labeled this Election a sort of FDR vs. Hoover contest; reflecting a horrific event (the Depression) that is a kind of thing that does focus 'change'; and to this day some argued that Hoover was on the right track; just needed a bit more time (yes he used to say 'we're making the turn toward recovery').
In fact Hoover Dam (they tried changing it to Boulder Dam) was an initiative in his Administration; also big projects like California's Highway 101 (before the Eisenhower era I-5); and no-one knows how much of FDR's reign already was started by Hoover's initiatives (the same can be argued about Obama's efforts to dig-out from the prior bust); or perhaps a continuation of Trump's in a Biden Administration, should that be the outcome. But I suspect most focus at this point is on healthcare, and an assumed post-Covid economic recovery.
Regarding my comments about 'change': that was promised (and somewhat delivered) by both of these past two Administrations; with some initiatives by the Trump Administration underappreciated (or omitted by media dwelling on one topic) even as others that weren't on-point got emphasized.
While not delving into a chat about everything from immigration to geopolitics (where the Middle East was a glowing achievement barely being reported on); we'll note that what are called 'Opportunity Zones' (capital gains exemptions; optimal mortgages or more) or minority college aid, were constructive areas that may expire, so it matters how these areas that really do matter for poor urban communities, are treated (opposition might claim budget constraints).
This matters to the markets as nothing helps recovery in the expensive and tax-heavy cities more than grass-roots initiatives which rely on citizens to have a hand-up, rather than a hand-out. I'm unsure to what extent, if at all, this is an Election aspect; but should it be? Probably too late for any issue.
Executive summary:
- Grudging advances alternating with stagnation for S&P persists; ruffled just slightly by politics or stimulus prospects, which persist in alternating swings sometimes multiple times daily it seems (Friday was up-down-up as a for-instance, as it responded to negativity ascribed to Pelosi once);
- It's actually a plus that the market has been relatively neutral amidst it all; and that suggest relative stability persisting; as I continue to see neutrality and not the catastrophic outcome some envision; bearish bonds or not;
- This forecast will change and reflects where we are not; not necessarily in two weeks; so please understand we've properly avoiding shorting S&P, at the same time recognizing those prospects (and tax-selling) do loom; but not under all circumstances (so stay-tuned);
- A huge earnings week coming up; Apple, Facebook and more; decent or 'beats' will emphasize how well technology has done during Covid-19 and in a sense help keep reasonable optimism for next year alive;
- Nevertheless, as often noted, some of these stocks may experience late 2020 tax-related selling (especially if Biden wins) ahead of higher rates;
- Israel and Sudan have agreed to normalize ties; as speculated earlier in the week (I thought Mnuchin's trip had to do with this, not just UAE deals and apparently so);
- Will Saudi Arabia be next; perhaps; the idea of an oil pipeline or terminal near Aqaba & Eliat (Red Sea just shy of Suez Canal) for Persian Gulf Oil is something I ruminated about a week or more ago;
- Multiple Compression (lower PE's) multiples remain the outlook for next year 'if' we get higher taxes; we'll expand more around the Election;
- Slightly rising rates (10-year notably) is perhaps not great for technology; is better for Banks; and reflects the 'reflation' trade for next year; with the expectations of massive spending (stimulus and eventual consumers too as Covid retreats next year.. not talking about this year) ahead;
- As the market holds-together; I don't think the macro picture quite as unconventional as some think; we've had a 'term premium' increase so that may not be sustainable;
- However that does hint at a Biden win, which would increase spending and likely bring an infrastructure package; but so would any emergence from the pandemic; resumptions of normal economic activities broadly; and for that matter 'both' Parties have in-mind infrastructure packages.
In-sum: S&P behaves very firmly; holding above a fail-safe level, that would invite a consideration risk of more notable big-cap retreat. Meanwhile decent earnings in many (not all) major issues has and will contributed to stability.
The pandemic is still a threat and a learning curve; while recent data affirms a lower death rate (so far); and that's welcomed news. Mandating masks now is being debated (Dr. Fauci advocates) and may still be a regional determination although in congested situations, clearly advisable. The focus in the Election for now; as some believe record turnout implications are being minimized.
Stock market (barring news) works higher with various earnings responses.
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