D&D Note (11.2.2020) ~ Stocks Rally Ahead Of Election Although Tech Still Under Pressure As Money Rotates Into Cyclicals ~
The market is pricing in a Joe Biden win ahead of tomorrow’s Presidential Election. A drawn-out contested election is not fully priced into the market and is a potential re-pricing event. A full Blue Wave of the democrats taking over the Senate as well isn’t fully priced in either.
Last week the S&P 500 fell -5.6% which was the worse drop ever in the week before the election. The drop was due to record Covid-19 cases in the U.S. along with Western European re-lockdowns. The other element that dragged down markets last week was the pricing in of a Biden win which brought down Tech stocks.
Today we continued to see the rotation from growth into value. Mainly out of Tech and into Cyclicals (Financials, Industrials, Materials).
The 10YR yield curve continues to steepen which is good for Financials and bad for Tech.
The FED does meet again in December and many expect to see some sort of yield curve control. This could help propel a Santa Claus rally in Tech stocks.
Even without a contested election the higher tax rates of a Biden win are not fully priced in which is another major headwind for Tech stocks.
D&D is still looking for more pressure on Tech stocks following the election if Biden wins which could cause an overall market correction. But could be short lived and rally again into the end of the year. An Infrastructure bill is assumed under a Biden administration which would lift cyclicals.
If the democrats take the Senate then we could see a larger stimulus bill than what the GOP would pass, but probably won’t come until next year with the new Congress which would be a headwind as well for market price action in the near term.
If there is a Trump win then what has been working will continue to work and the cyclical rotation also will continue with an expected infrastructure bill along with a stimulus bill (but smaller bill than a democratic bill) that could get passed before the end of the year.
If there is a Biden win but the GOP hold onto the Senate that potentially would be a bullish setup for Tech stocks with political gridlock.
Overall D&D is not looking to sell any position (as we already took our gains when markets hit their highs in September) but rather take advantage of any pullback to add to our current positions and start new positions where price discovery happens.
Stocks such as Tesla, Netflix, and Chewy are just a few that we are looking at to begin new positions in on a pullback.
The new Quinnipiac University poll shows:
- National: Biden 50%, Trump 39%
- Florida: Biden 47%, Trump 42%
- Ohio: Biden 47%, Trump 43%
RealClearPolotics’ average of polls shows Biden up 2.9 points in Pennsylvania whereas a week earlier that lead was 4.8 points.
As we know from 2016 the polls can be extremely wrong on a statewide basis.
The key states to watch are Florida, Ohio, Pennsylvania, Arizona.
Trump essentially has to win Florida and those 29 electoral votes (there are other paths but very unlikely). If Biden takes both Florida and Pennsylvania the election could turn into a landslide.
In a tight election it could come down to the single District 2 electoral college vote in Nebraska and Maine. This scenario could be Biden taking both those District 2 votes and putting him at 270 (the amount needed to win) and Trump at 268. That scenario could also be reversed for a Trump win by 2 votes. A third scenario where Trump wins the Omaha Nebraska District 2 vote and loses the Maine District 2 vote would leave a hung election with both candidates receiving 269 votes.
College students could be a crucial swing vote with the following issues the most important to them:
1 Health Care
2 Racial Wealth Gap
3 Student Debt
4 Career Outlook
Markets saw a bit of a dip over the lunch period but rallied into the close.
DOW up 1.60%
S&P 500 up 1.23% (3310.24)
NASDAQ up 0.42%
VIX down -2.34% to 36.98
Oil up 3.32% to $37.11 a barrel.
Gold up 0.87% to $1896.30 an ounce.
States seeing the highest Coronavirus cases per capita over the last 7-day average are: North Dakota, South Dakota, Wisconsin, Montana, Iowa, Wyoming, Nebraska.
States seeing the lowest Coronavirus cases per capita over the last 7-day average are: Vermont, Hawaii, Maine, New Hampshire, Washington, New York, California.
During a Miami-area rally Trump suggested he might fire Dr. Anthony Fauci after Election Day.
Global Virus cases: 46.81 million+
Global Virus deaths: 1.20 million+
U.S. Virus cases: 9.25 million+
U.S. Virus deaths: 231,263+
~ Dave James / Principal Trader and Market Strategist