14 Oct WHAT HEADLINE IS CORRECT?
The headlines are declaratively stating Biden will be the next President and the odds of a blue wave is rising. The headlines are also stating the reason for the recent advance is increased stimulus and government spending under a Biden Administration.
Several recent polls of investment managers are suggesting entirely different conclusions. According to a survey of fund managers taken by Bank America ending the week of October 8, 62% believe there will be a contested election, causing massive volatility in the final months of the year. Only 25% believe the outcome will be known in the immediacy, defined as 24 hours after Election Day.
These results are comparable to the UBS survey. This survey indicated 65% of managers surveyed think the outcome will be contested.
What headline is to be believed?
As noted many times, the markets are dominated by algorithmic trading, trading based upon several word headlines.
As widely evident and noted above at this juncture the headlines of a convincing Biden victory and massive stimulus are dominating trading.
It was only four years ago that a political narrative executed one of the most stunning 180 degrees in history. When the returns on election night 2016 showed that Trump might be on his way to a stunning upset victory, S & P 500 futures plunged to down limits, gold surged and yields plummeted.
Reiterating, it is thought a Democratic President and/or sweep of Congress will pave the way for aggressive stimulus spending with the end result of higher stock prices, interest rates and economic activity with few ill side effects. What happens if Biden does win and instead of a stimulus induced boom there is negative real growth, surging debt and greater wealth disparity? I must write historically this is the result of massive government spending.
In my view, a massive violation of natural laws is occurring with many inventing their truth to suggest the desired outcome.
I don’t think it is inflammatory to write that today is one of the unique times when a political event or narrative is gathering steam and driving the markets to powerful trends, a trend that is perhaps unsupportable by history or economics.
Commenting about yesterday’s market activity, equities were mixed as stimulus talks continued. The President appeared to contradict the Senate Majority Leader’s position when the President tweeted “Go big or go home.” McConnell is advocating a smaller proposal to be voted on next week. House Leader Pelosi out right rejected any Presidential proposals which to most observers is nothing other than election posturing.
Last night the foreign markets were mixed. London was down 0.16%, Paris down 0.15% and Frankfurt down 0.14%. China was down 0.56%, Japan up 0.11% and Hang Sang up 0.07%.
The Dow should open nominally lower on mixed large sized financial earnings, stimulus impasse and general disgust about the state of American politics. The 10-year is up 3/32 to yield 0.72%.