The Good News Is...

The Good News Is... image

The State of the Market

First the good news. Using history as a guide, it looks like the major indices should finish what has been a crazy calendar year in fine fashion. According to data from Fundstrat, when the S&P 500 is up between 10% and 15% between January and November (the S&P 500 sported a year-to-date gain of 12.1% as of November 30th), the index goes on to post a gain in the month of December as well. As in 100% of the time. Nice.

Granted, the data are from bull market periods only. And while bear markets can and have recently come out of nowhere (I'm reminded of December 2018 here), you've got to like the odds of stocks rising during the final month of the year, right?

The bad news is that just as investors had become comfortable with the idea that stocks are discounting better days ahead for the economy and earnings thanks to highly effective vaccines that are coming soon, the children in Washington DC started to bicker again.

In case you missed it, at least part of the impetus for Tuesday's rally was the headline that a bi-partisan emergency relief bill worth about $900 billion was being proposed. Yes, you read that right, a bi-partisan deal. You know, a plan that was cooked up by members from both sides of the aisle. I don't know about you, but I for one was pleased to see some cooperation in Washington for a change.

But then, of course, Mr. McConnell threw cold water on the day by saying that such a deal had no chance in his Senate. And as you might expect, headline-reading sell programs kicked in tout suite. Although the indices managed to finish the day with solid gains, the intraday action should act as a reminder that volatility hasn't gone away.

So, it appears that we may be back to a deal-or-no-deal environment where stocks rally on the hopes that additional stimulus is on the way and fall when the politicking kicks into high gear. Super.

Yes, the economy will likely survive if a deal doesn't get done before January 20th. However, Jay Powell has been pounding the table for Congress to help support the economy. And with JPMorgan, Moody's Analytics, and Goldman all saying that GDP is likely to fall in Q1 and/or Q2, the thinking is that a little support from Washington might help cushion the blow while we wait to get vaccinated.

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The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning's opinions and viewpoints regarding the future of the markets should ...

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