Download pdf version – Market Watch – Election correction – October 23, 2020
“Every time I end a meeting with a Central Banker over the years, I leave very afraid.”
– Mike Green in interview on Grant Williams podcast “The End Game”
Bottom Line: For now, the weight of evidence supports the bull market in stocks. Regardless of who wins the US election it would seem highly likely that US monetary policy and government spending will continue unabated, putting a wind at the back of stocks, commodities and inflation.
At risk of being repetitive, our efforts to grow our accounts in the next year or three will be supported by monetary and fiscal policy. In other words, I think that money printing and deficit spending could continue to drive asset prices higher as governments around the world take an increasingly large role in the economy and the markets.
Purchasing power of our retirement funds is another matter, as it would appear this asset growth will be a reflection of inflation that broadens out through our lives to a point it becomes undeniable.
This will put further pressure on the middle-class and it will be more and more difficult to “get ahead” in an economy increasingly controlled by government and central banks. More on this in future updates.
In the Markets
Many people have asked me about the U.S. election. There are never-ending stories in the media and financial press about the potential outcome on stock markets. My view is that it effectively doesn’t matter in the medium-term (6-18 months).
The “market” as measured by the Nasdaq 100 ETF below (index of largest growth stocks in the US) has been feeling “heavy”. The chart below shows the classic “cup and handle” we’ve featured in a couple of Chart of the Day editions of late, but now the weary market has gone sideways, on lower volume, potentially reflecting an undecided market going into the US election.
This is why I believe the US election is unlikely to matter to the stock market over the next year or more: anyone awake for the last fifty years will observe that regardless which party is in power, fiscal and monetary prudence in with either party is non-existent.
Short-term and further consolidation/correction is likely to lie ahead. The market got a little complacent coming off the bottom in September, but that is a short-term thing only technical nerds need to watch. Given the backdrop of monetary and fiscal policy, even if the market does drop to test the September lows (which was my base case expectation but seems less likely now) it should be short lived. In fact, now my base case is that it seems likely that any correction will remain one of rotation and time as money jostles for position based on the election outcome (some sectors will do better under different outcomes than others) rather than magnitude. Long term, technology is not dead and is likely to remain dominant for some time. More on that in future updates.
Our market view sounds like a prediction; rather it is an observation on the dominant item on our Raps Sheet, which measures factors that drive bull and bear market cycles, gov’t policy (and central banks because they aren’t independent, as is their mandate). As such we remain invested.
To quote John Maynard Keynes ““When the facts change, I change my mind…”
The primary trend remains up and I believe odds are for more market upside over the next few years.
Our job then should be to try to position our portfolios for the next leg, adapting to our Buying Pressure Models which continue to show rotation into commodities and financials.
However, as always, we remain completely open to any eventuality that the markets bring. Our strategies, tactics and tools will help us to successfully navigate whatever happens as we focus on monitoring supply and demand signals that the market provides us.
I hope you have a very good weekend. If you have any questions about this update, or anything else please do not hesitate to reach out.
Peter Schenk, CMT, CIM | Portfolio Manager
Words we operate by:
“Deliver to the world what you would buy if you were on the other end. There is huge pleasure in life to be obtained from getting deserved trust. The way to get it is to deliver what you would want to see if you were on the other end.”
“Strive not to be a success, but rather to be of value.”