A dramatic departure - from headline risk might be needed to justify lowering caution flags that we've flow for several weeks now. Risk exposure by many in big-tech especially (FANG / super-caps) was far too excessive for the times. It is pretty clear to us that this is more COVID-than-politically related, though sure aspects of both play roles. Those roles could even interfere with each other.

It actually doesn't matter if most of us view COVID-19 as 'The Plague' or not, it is being treated that way globally. There is a view of letting younger healthier people go about their lives as they wish, while protecting those at-riskier. First blush glance seems that makes a bit of sense.

However, that ignores that nowadays the average American has something like 2.6 comorbidities, which means there really are more unhealthy people in the United States, perhaps than most of us ever imagined. So, since obesity, diabetes, asthma and a myriad of conditions suffice to increase odds of 'not doing well' if contracting COVID, well I guess that's the reason it's taken much more seriously (or should be) in Europe and the U.S., versus Asia, where the story is (and not entirely accurate) that they eat and live healthier (inaccurate in countries where they smoke). Australia did horrible, now doing better, after going through the kind of tough-love lock-downs US citizens disdain.

As to the market, the S&P is responding to all this with a calamitous decline, in response partially to lack of stimulus, partially to lack of National policies on containing (or trying to) the virus (and therein are political debates), or simply as far as Wall Street is concerned, awareness of a public cash deficit and the growing Federal one, that is worse than anything since the Great Depression. This IS the Anniversary, and brains not ignorance, needs to avoid another.

I noted months ago, if not for leveraging stimulus trances, an actual economic depression beyond the lowest rungs of now-unemployed society, is a risk. So it's been like a rock hitting a windshield for stocks, but hard to understand why they didn't see this coming, given it was crucial to get interim stimulus again.

While we anticipated the last couple bounces to falter and drive below the 50 Day Moving Average, with near-term risk to the 200-Day Moving Average, it's not easy to divine given the extraneous influences impacting the market. This is not, and has not been, a time in our view to ignore COVID 'globally', while it's mistaken for pundits or analysts to hinge their market hopes on the Election.

There has already been a broadening of interest (sector diversification) from a focus on super-caps to less-extended securities that actually reflect value, or of course are in fields that will likely recover with a small business focus next year, away from just concentration in the tech stocks that do benefit during of course a spike in COVID, which re-invigorates the 'stay-home/work' plays.

Big cap techs do have room to come down near-term and then the bounce in general, but we're not oversold enough (or the VIX high enough) to proclaim a washout low. We can get an 'it's never going to end' mentality, but that's still a pending consideration, and of course can be swayed by any major news.

The world we live in will lead to a time when analysts say value outperforms, or so on. But aside a 'really clear' election result (which could coil the market for a move) OR a surprised positive development regarding vaccines or better 'antibody therapeutics', this remains the defensive market we're discussed.

Thursday we're get reports from Apple (AAPL), but again good news may be sold into as it's the nature of the market during this correction phase. Hard to measure all risks, since it's only now that Wall Street, still focused on the Election, very suddenly seems to get it with regard to the pandemic being out of control. I'm looking forward to amazing new products in the years ahead, but the focus in the short-run still is on pandemic, muddling through, and allowing restoration of reasonable business relationships with China to prevail, if they behave..(?).

On the political side, we continue doubting anyone will be conceding defeat, after a few hours of vote counting (unless numbers are so lopsided for one, that victory by the opponent becomes mathematically impossible not merely unlikely). And that's where COVID and politics could collide and worsen S&P (SPY).

Sure, there will be moves related to next week's Vote, or worse, a suspended animation Vote that leaves a 'contested' Electorate held in abeyance for days or even weeks. That's a kind of economic (and policy) uncertainty that market stability won't embrace. So we'll assess this day-to-day as it evolves.

I've mentioned companies beating expectations in this environment, but at the same time facing early (pulled-forward) tax-selling, based on concern about higher Capital Gains rates 'possibly' ahead if Biden wins, part of why a Biden victory was seen by me as more bearish for this Quarter than necessarily for the broader market next year. That concern persists too, but mostly COVID and lack of a stimulus package arriving is certainly more than frustrating for many.

Executive summary:

• One member called this a paper-mache market, a good way to describe what for months I've termed an internally-correcting declined 'masked' by the big-cap (FANG type) stocks, as gave an illusion of market strength.

• That's also why I've suggested again for weeks, a serious correction for S&P, but not so much for those sectors already eroding for months.

• So now it all collides with the already anxious pre-Election market, delusional denials about the situation by some, overly negative prospects by others, and in-reality a market that is catching-down with reality.

• It's all about 'tech' to a degree, because that's what drove the market. .

• My intention is to shorten these significantly ahead, as we do navigate unprecedented backdrops of politics and COVID as best we can.

• A solution to COVID amidst a contested Election drawn-out for a long time would probably be the worst case for the S&P to envision ahead, I doubt we'll get that combination however.

• The 'safety-net' has been withdrawn surrounding COVID stimulus, while it is obvious that business is taking, and will continue to take, a serious hit, in-part not 'cushioned' by funding to help business and people survive.

• It's the collision of COVID stimulus inaction, along with spreading disease, that transcends the market's already-anxious mood around 'politics'.

• Without the support for small business, any Fed action won't help either, which is my point about how negative rates in Europe weren't relevant.

• And big companies have been able to sustain because the majority of a pandemic lifestyle is deeply involved with big-cap stocks, not local shops.

• In Europe the focus is much more on family and small businesses, hence you have different types of public protests against lockdowns, from these small businesses and their workers.

• That's a slightly different social issue vs. here, where we have mobilized cities now to contend with rooters and riots, not peaceful protest marches increasingly, and states like Texas calling-out the Guard for Elections.

• Dynamics here reflect a lot of companies that were beneficiaries of COVID, and without stimulus (or believing business retreats without stimulus), lots of those companies are also feeling pressure.

• S&P and big-tech: for now sideways at best, lower at worst, based on the October narrative we have anticipated the market would be dealing with.

• Bounces will be sensitive however to news developments on COVID more than politics, and of course post-Election stimulus would smooth things.

• As to COVID, while there are variations in resurgence in some states, that in-itself is not going to negate need for sensible measures, even while the draconian measures (such as New York State's) may go a bit too far.

• I'm actually thinking there is a spike of COVID in New Jersey so anyone in New York who thinks they've dodged this are mistaken.

• For now, even if we get stimulus and favorable Fed action, a look at how negative rates have 'not' helped Europe, show that this is more about the evolution (or solution) for the virus, not merely monetary or fiscal policy.

• We have learned about to have something of a more-normal life dealing with the virus, but despite U.S. resilience it's a pretty dire global picture.

• If a serious resurgence occurs in Asia, global despair will deepen.

• Statistically probable market outcomes don't work so well when metrics are dramatically offset.

• Yes we're optimistic further-out, this is not a change of what we've already said, simply being realistic about where fundamentals are and 'risk' levels.

• In this environment most investors are potential 'buyers in the closet', with no desire to venture-in significantly until they see 'other-side' visibility.

• Other-side visibility on COVID 'and/or' politics can be clouded by tax-sales that have already occurred or vary depending on the vote's outcome.

• From the political side, the worst-case would be a dragged-out process which even ends-up in the Courts (aka: Bush vs. Gore years ago).

• Civil strife is a concern, that's what Philadelphia shows, and what Texas National Guard mobilization (minimized in the media) already fears.

• What is sad is overreach by States, California restricting limited opening of Disneyland (when Disneyworld was opened so responsibly if boringly), is economically depriving to Anaheim/Orange County, and excessive (DIS).

• The point is not 'living with the virus' or 'dying from the virus', but adjusting to a reasonable effort that keeps the core of the economic functioning in as many sectors as possible, clearly not so much tourism or travel.

• The prospect of Europe's new lockdowns should be sobering to all of our domestic myopic players who fail to grasp intertwined global economics.

• It is all part of the same defensive pattern, related to technicals outlined already (break of S&P's 50-Day, rebound tries, and then likely lower), we envision a continuing evolving decline for now.

In-sum: a proven therapeutic within a couple weeks (not months) would be the ticket to arrest defensive market conditions, which otherwise continue to shuffle in a corrective way. We can get a bounce if we totally crater.