The Market is a living, breathing organism. It’s a powerful force. The Market is as close to all-knowing as there is in the world. It factors in information immediately and prices things in. It’s the place where buyers and sellers negotiate and discover a fair price. Quite simply, the Market is driven by the wisdom of crowds.
Today’s Market, interconnected around the globe, is always open. It never sleeps. Managing risk and volatility in a portfolio is similar to dealing with a hurricane. I never lived directly in hurricane territory, but my Atlanta days saw many of those Southern storms which started from hurricane winds off the Gulf Coast. There are many preparation tactics to do in advance. You can only control what is controllable.
The biggest tailwinds for this Market revolve around the narrative of massive monetary stimulus, earnings resiliency, the potential for a vaccine and a continued economic recovery. The biggest headwinds revolve around the recent slowing economic momentum, lack of additional fiscal stimulus, peak Fed concerns and the election uncertainty. You can see how the current state of the Economy is at a crossroads. Can it stand on its own feet without more support from Congress or the Fed? The tailwinds are slowing while the headwinds are picking up. It’s causing turbulence.
High-frequency data has been very helpful in gauging the economic recovery. It measures activity real-time. The fresh indicators suggest the US Economy is losing momentum. Jobless claims are still high and expectations are growing for more small business failures. Mobile data shows that the gradual return to restaurants, gyms and other “close contact” businesses has largely stalled, following the improvement seen over the Summer. Americans are also cutting back on flying again while public-transit traffic remains at historic lows.
The election continues to heat up with next week’s debate likely to reach a fever pitch. Bloomberg has an article out stating that Joe Biden would likely get the Economy accelerating faster than President Trump would in 2021. That headline alone had to catch people’s attention as the subject of the Economy has always been the one where the incumbent has ranked higher. The term “Biden lite” is being circulated now, suggesting that only a scaled-back version of the Democratic candidate’s proposal would see the light of day. The Trump campaign will certainly have something to say about this and it will no doubt be a topic on Tuesday night.
Also rumored this week was that Joe Biden’s search for a Treasury Secretary is focusing on current Fed member Lael Brainard. This would be a choice that would keep both Wall Street and progressives in line. Apparently Senator Elizabeth Warren has not been ruled out, but is less likely. Brainard has reportedly expressed more interest in being Fed chair than in leading the Treasury, but would not turn Treasury down if offered. Current Fed Chair Powell would likely stay, even if temporarily, under Trump or Biden. The fact is, the Market would celebrate pretty much anyone other than Warren, who has made it clear she is no fan of Wall Street.
Hurricane-like winds are going to collide in Cleveland Tuesday. The 2 Presidential candidates will be there in person to field questions and will no doubt spar with each other directly. This will be the first of 3 debates designed to shape the choices on the ballot. Politics have created serious turbulence in the American way of life. The highly contested election continues to bring the greatest uncertainty to the Market and the American people. The one thing the Market hates, more than anything else, is uncertainty. The probabilities are high, with increasing frequency, that this uncertainty outlasts November 3rd. The Market continues to try to price it in.
The S&P has now declined 4 straight weeks. That is the first time it’s happened in over a year. There’s been a pretty good shakeout already. There was a nice oversold rally on Friday to take us to the weekend. It might continue into next week. With the Market, one never knows. The Market can be a menacing force. You can only control what is controllable. That’s the case with protecting against a hurricane as well as a Market correction. We have engaged many defensive tactics in advance. We will continue to play defense if the Market turmoil increases. We think it does. A storm’s a-brewin’…
We will get through it. We are more than ready.
Have a nice weekend. We’ll be back, dark and early on Monday.