Market Briefing For Thursday, Nov. 5

An acceptable 'Balance of Power' - essentially takes this historic Election to end-up over the course of the month, as a fairly 'benign outcome'. Entirely of course open-to-question (what hasn't been in the year 2020), but appears to be what we'll end up with. That's likely the best decent overall environment for investors under 'mixed circumstances', with zero prospect of any radical left programs being imposed on the American people, regardless of whether most believed Biden would resist pressure from those elements of his Party. Now it simply won't happen because of Congress, and maybe this will just suffice.

'The market' is what we've been concerned about, as our view's been higher stock prices as probable aside knee-jerk reactions that 'might' occur if we'd gotten not so much a Biden victory over Trump, but particularly the Senate. In this environment what the market is reflecting is not just that the outcome has to be immediately known for the 'top of the Ticket', but rather 'no tax change' and that's assured by what we already know about the makeup of Congress.

With 'capital-gains' changes off-the-table, and while you can get settling-back, after this kind of thrust higher for S&P (SPX), you still have the prospect of a reflation trade in 2021, with the mega-cap technology stocks still at the forefront, albeit I think not alone. The therapeutic drugs remain the key to the progression of a COVID massacre, which would otherwise be more unpredictable.

Executive Summary:

• A 'relief' rally is actually what the market was expecting and actually got, irrespective of a resumption of Trump or a Biden ascendancy.

• Maneuvers by the Trump Campaign are or will be mounted to challenge the results of certain states by recounts, this may not matter depending how the fluid dynamics of the final vote certifications unfold this week.

• Recounts and legal challenges are continuing to seed some angina and maybe protests, however, to the market it's Congress that is so relieving for now, regardless of 'Presidency uncertainty' that will prevail for awhile.

• 'Frozen Government' is a sufficient 'chill' that repels and radical programs, denies prospects for tax hikes, and restores confidence to investors.

• This becomes a form of reasonable 'Balance of Power', if we have Biden as President (and that's not known yet), perhaps reducing divisiveness in this Country, but also with Congress blocking impossible economic shifts.

• That doesn't mean we don't get more corrections amidst lame-duck, but it does make stimulus (albeit maybe smaller) and infrastructure likely too.

• Incidentally we did get the middle of the night sharp 1-4- am shakeout, and all up before New York opened on Wednesday.

• The heaviness on Biden's backing really was 'taxes and COVID', which is what I had bemoaned people voting about.

• Few like voting for higher taxes, and the idea of further lock-downs isn't appealing, even if that would stypie the exponential COVID growth.

• As Europe (Spain is a good example) excessive lock-down restrictions hobble the economic prospects and don't even prevent COVID resurgence if they're removed before we get therapeutic drugs (and vaccines).

• Now, with this unfolding, the importance of 'antibody therapeutics' and vaccines becomes 'even more' urgent if we're not going to see what lots of folks view as essential social guidelines that aren't being followed.

• Sector rotation will be minimal for now, and no more early tax-selling (a hunch I've had all week that this was behind in the preceding shakeout).

• Positive conditions for investing will persist overall, low yields generally reflect this, and it's an environment that will balance out reasonably.

• Speaking of monetary policy, I expect Chairman Powell to keep policy in an 'easy' mode, and retain his term (or a 2nd term) in a new Presidency.

• Also, Uber's victory saves it model but doesn't really enhance valuation as long as COVID persists, as California voters approved measures that keep ride-sharing firms from treating drivers as employees 'as such'/

• On a (?) lighter note, let me suggest if we don't get a useful vaccine in a hurry (aside the therapeutics), you might see 'vaccine tourism' become a 'thing' for a very short time.

• If not yet, soon Americans & Europeans can fly to Dubai for-instance, and get a Chinese vaccine believed approved (I'm slightly cynical about this, as unsure it works although the Emir got it :).

• But we'll have our own vaccine soon enough, that will start a shift to the post-COVID economy, but not rapidly barring 'therapeutic antivirals' too.

• By the way, science 'leans' to the idea that vaccines won't protect well in a situation of 'RNA mutating virus', which is what we're dealing with, thus all the more reason one needs to have a therapeutic antibody and/or a T-Cell based solution, just relying on vaccines won't really be enough.

• Last night I noted that if the Vote were Close, and neither had a landslide, and one fights it for weeks, that is a sub-optimal, but the situation is better for stocks, because of how the structure of Congress worked-out.

• To fully emerge higher we need vaccines and 'therapeutic drugs', to get a scenario I call to economic 'escape velocity', expected later in 2021, with of course the S&P discounting that in-advance as already suspected.

• Finally, that hurricane that just clobbered Nicaragua, is forecast to turn North toward Cuba, and then either the North Atlantic.. or Florida.

Most of the 'perma-bears' were the same crowd that doubted our optimism at the conclusion of the 'max-fear' panic-washout in February/March and persist in fighting this market. Yes it has a paper-mache yield-supported backdrop, at the same time that's been the underlying monetary policy sustaining finances, for quite awhile. We're not in-favor of negative interest rates (Europe or here), and realize the eventual catharsis that can happen when investors are forced out of growth stocks, but that's way down the road (perhaps a couple years).

We are still in 'Wave 1, 2 or 3' for COVID (matters not how you view that given it all changes when we get the appropriate urgency to therapeutics), and we'll insist that the U.S. will come out of this contraction (or Depression for jobless segments of society), it's just a question of doing they want it responsibly or in the half-baked way contradictions between politics and public health policy for now persist (with the dangerously incompetent advice in some quarters).

Meanwhile . . operational costs have dropped so much for many sectors, that you actually could see surprisingly good earnings next year due to increased operating leverage for many companies, in-part because of reduced overhead (but of course this will vary widely with consumer discretionary struggling with physical-presence operations).

Reflections: It's tough to reflect on the polarized politically-correct versions of arguments in media these days or tighter purse strings of a new Congress. In this year's election we saw 'fear' of change, and 'fear' of established thinking. Both seem to have simultaneously acquired a status with neither side viewed or considered commanding a morally-commanding status in society.

So perhaps, when given neither agenda-base is flawless, as both were and are convinced of their righteousness, perhaps it's a blessing. For what may be essentially divided governance while issues mature, it hopefully generates a calmer backdrop, given incremental -not broad change- obviousness now (a focus on the importance of the Congressional mix and reduced radicalism).

Last night I praised our citizens, believing it to be commended, not criticized, to see an historically high total vote turn-out given so many people, especially in the middle of a pandemic, could be motivated. (And yes Dr. Birx was and is entirely correct that we're not seeing truly emerging pending vaccines/drugs). I'm impressed so many took it upon themselves to participate in civic duties to vote, and amazed that with historic turn-outs, so many narrow races resulted.

I think that shows the continued divergent view of the best-road forward, so at least it may be a bit calmer other than the noise of the legal challenges (not to minimize the importance of the Presidency, but clearly the stock market really is satisfied, no major tech regulation, and no tax changes coming, period).

To wrap-up that thought: one of the main drivers of the media wars has been a 'culture of fear' of the other side, and that undermines authority, with goals it seems of unraveling any moral legitimacy. I think that's a political trap, and I suspect leaders have fallen into it excessively, especially as they're distracted by the pandemic and not thinking deeper before reflexive responses.

That's a problem too in actually fighting COVID, because there is a tendency to throw lots of money in one direction and then it turns-out to not be the optimal path. When first efforts don't bear fruit, temptations to retreat or embrace what I'll call the cultivation of helplessness and passivity can take over. And, as the society sometimes get agitated (or in the case of COVID either in-denial or conversely really upset at the lack of ramping-up responses to disease) that's not a solution either (look at the delusional anti-science opposing views on re-opening -which we must do- but again some do it without balancing things.. it is a state-issue often, but National leadership should be setting the bar high).