The Market was in rally mode to start, but quickly switched to corrective mode to finish out October. Friday closed out its worst week in months. It was the worst month since March. The S&P is back near the September lows. The Dow is back where it was in July. October lived up to its reputation as the most volatile month for stocks.
Interestingly, Bonds were not a safe haven this week. Bond prices fell while yields jumped. That doesn’t happen often. Stocks and Bonds tend to have an inverse correlation. Even the Tech Titans couldn’t keep the uptrend going with their strong earnings reports. Expectations were high and Tech had already priced in a lot. The Banks, however, have been a bright spot of late. They just haven’t done well on the year.
Next stop, November. The date marked on the calendar all year is just 5 days away. This was definitely an anxious shakeout ahead of the election. Worsening coronavirus trends in Europe and the US continue to dominate the headlines and have raised concerns about the economic recovery. The election uncertainty continues to be the major overhang. Joe Biden’s lead in the polls is countered by the potential for Donald Trump to deliver another surprise. It’s really anyone’s guess. There is a lot to debate about the accuracy of polls these days. Biden is still ahead in most electoral-college scenarios but holds only narrow margins in many swing states. The real question is whether we will even know the results Wednesday morning.
If Biden wins, both moderates and progressives could feel empowered. Moderates argue that running a candidate like Biden, who can appeal to swing-state voters, was necessary to win the Presidency. Progressives likely see Biden’s embracement of some more liberal positions as contributing to a victory and confirmation that the country is becoming more progressive in its views. Renewable Energy and infrastructure are high priorities for the former Vice President. The Market seems to be quite ok with a Biden administration, mostly because of expected aggressive stimulus spending. But it sure seemed to get a little more anxious Friday when rumors circulated again that Elizabeth Warren is campaigning for the Treasury Secretary role under a Biden administration. Warren and the Market have a storied relationship. They don’t really get along.
Would 4 more years of Trump be much of the same? It’s impossible to know. Consistency is not a cabinet member of the 45th President. What seems likely would be a faster opening of the economy, an infrastructure plan, permanent tax cuts, tighter immigration and an even harder line on China. More changes in personnel would seemingly be a lock.
It’s been said, many times, many ways, this is the most important election of our lifetime. It sure feels that way. The Market volatility is so understandable. After a relentless rally from September to mid-October, a correction was inevitable. Particularly with a stalling economy and spikes in the virus. Just remember this: Regardless of who wins the election, Jerome Powell is going to be head of the Fed for the rest of the year at a minimum. Interest rates are at zero and will stay at zero. There is a tremendous amount of support under the Market. Besides, a major stimulus package is almost certain. It’s only a question of how much and from who.
Investors are focused on one thing right now. At this point everything else, Covid case count, stimulus, and even earnings are just noise. This was the worst week for the Market leading up to an election, ever. It reflects the stakes and the uncertainty. The fact is, everyone (and I mean everyone) is hunkering down anxiously for Tuesday. It’s just days away. Hang on tight.
Have a nice weekend. We’ll be back, dark and early on Monday. Spring forward, Fall back. Make sure to change your clocks!
Mike
