The election is tomorrow.  The WSJ writes “perhaps Mr. Biden will win an overwhelming victory, as nearly the entire press corps predicts and prays.”  The WSJ also quotes the pollster who was one the few who predicted a Trump win in 2016 explaining why the polls were wrong in 2016 and perhaps again in 2020.

Robert Cahaly uses the terms “social desirability bias” and “social acceptability bias” to explain why the polls were wrong in 2016 and perhaps again in 2020.  Essentially Cahaly states people are not truthful when polled and those who are polled are normally angry politically engaged individuals.  The typical voter ignores pollsters and if by some chance they answer the phone they lie about the preference fearing that they will be publicly shamed.

Cahaly’s comments closely resembles the outcome of a mid-October Gallup poll which indicated 65% of respondents are not entirely truthful when asked about voting preferences.

Who I think is going to win and by what margin has no more substance than my neighbor’s view.  Like all I am clouded by confirmation bias and the desirability of a certain outcome that supports my political views.

Some might bristle to the above comment but it is the reality of the human psychic.

The WSJ further writes that after Tuesday the race may evolve into “May the best lawyer win” given the massive legal departments both candidates have created for a contested election.

Reiterating Bank America’s comments, a contested election may cause a “substantial sell off in the magnitude of 20 plus percent.”

Many times, I have used the word “galactical” to describe the election.  In 2016 I used the word “tectonic.”  More are now beginning to recognize the possible rewrite of the Constitution and massive changes in the regulatory and tax environment, all of which will at best create massive uncertainty in the economy and society alike, of a Biden victory and potential “Blue Wave.”

I ask if Biden does win will there be voter remorse?

I also ask the question what happens if there is a Trump victory?  Will the credibility of media/pollsters further decline, with most publicly stating that the vast majority of the today’s information industry is one massive Pravda?

Such would delight Trump supporters but there is a greater issue at hand.  Accurate, transparent and non-biased information is essential to make decisions.  Markets might begin to discount a massive information vacuum, a vacuum that will also increase uncertainty and volatility.

Just as aside, Friday Bloomberg posted a headline “If you believe the urban legend of a stock market rule for the presidential election, the race is tighter than the polls suggested.”

Bloomberg writes since 1928 a positive return in the S & P 500 over the three-month period before he election tended to point to a victory by incumbent party, while a negative return favored the challenger.  The “indicator” has predicted 20 of the past 23 election and its track record since 1984 had been pristine.  At the close Fridays the S & P is up a little less than 1% for the past three months.

Radically changing topics, Bloomberg writes October was the worst October since 1987.  The decline commenced two weeks ago with the advent of earnings seasons.  As written several times, profits and forward-looking statements are surprising on the upside by the greatest margin in almost twenty years.  To some this might be contradictory.

The issue at hand is valuation and concentration of wealth in a few names that have greatly skewed the indices.  The vast majority of the must owned names are acknowledging six years of sales have been front loaded into six months and past performance is unlikely to be repeated.  Unfortunately these names are priced that yesterday will continue into infinity.

Commenting about Friday’s market, yields on the 10-year Treasury rose to the highest level since June.   The NASDAQ declined about 2.6% on earnings.  Led by technology for the week, stocks had their biggest weekly loss since March.

Speaking of declines, Bloomberg writes energy is suffering the biggest drop of any sector going back to 1928, losing about 60% in value and is now comprises less than 2% of the S & P 500.

Bloomberg writes that typically writes a sector’s relative losses stop around 35%.

I have always believed a stock or a sector can decline a lot more than anyone can imagine as was the 2000 case in the techs, the financials in 2008 and energy in 2020.

What will happen this week?  To write the obvious, attention will be focused on the election.

At this juncture no one is focusing on the crowded economic calendar, a calendar that is comprise of many top tier data point including the ISMs and employment data.  All attention is focused on tomorrow.

Last night the foreign markets were up.  London was up 1.07%, Paris up 1.78% and Frankfurt up 1.74%.  China was up 0.02%, Japan up 1.39%  and Hang Sang up 1.46%.

The Dow should open nominally higher following the worst week since March. The 10-year is up 4/32 to yield 0.86%.


The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. This material is being provided for informational purposes only. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. If you would like to unsubscribe from this e-mail distribution, please reply to this e-mail and indicate that you wish to unsubscribe in your response.