WASHINGTON – In our Sunday column, we warned investors to be careful this pre-election week. The problem: a high potential for headline terrorism. Monday’s trading action thus far serves to confirm our point. According to both CNBC and Fox Business, we’re watching a nasty stock market cliff dive Monday for two primary reasons. For a change, let’s give the floor to Fox.
More headline terrorism leads to Monday’s stock market cliff dive
“Stocks tumbled on Monday, as traders expressed concerns on whether U.S. lawmakers would pass another fiscal stimulus bill to support the economy and as Europe put additional restrictions in place to fight the COVID-19 pandemic.
“The Dow Jones Industrial Average dropped over 950 points or 3.4% on pace for the worst session since June. While the S&P 500 and Nasdaq Composite sank 2.8% and 2.7%, respectively. The two heading for the worst day since September.
“Oil fell below the $40 per barrel level, a 3-week low, making energy stocks the worst-performing group in the S&P along with industrials.”
Yes, here it is, headline terrorism front and center. This kind of bad news onslaught will quickly kill any incipient bull move, particularly in the crucial week leading up to a highly contentious – and perhaps momentous – national election that pits the power of light vs. the power of darkness. And, of course, depending on your political allegiance, the power of darkness necessarily involves the party or political movement that one happens to despise.
Breaking down that pair of scare headlines
Fox rightly focuses on this week’s two main politicized headline threads. One is the ever-morphing Covid-19 threat, which seems to reappear as often as the tinsel town version of Dracula rises from his grave. The other is Washington’s still fabled “stimulus bill.”
The problem with the latter item is that our national election will happen (we think) next Tuesday, November 3. And so, like Saul on his way to Tarsus, Nancy Pelosi gets struck by a lightning bolt sent her way by G_d – highly unlikely – and becomes actually willing to compromise, there won’t be a stimulus bill this week. Or maybe ever, if The Donald has the effrontery to win the election.
We could always be wrong on this. Or maybe the GOP will save our collective skin and, as usual, cave to the opposition. In any event, it’s really too late for any bill to have much effect on the market. That’s because its mechanics won’t crank into action until we’re in the middle of the likely endless vote counting game. And that’s likely to be worse than the month-long charade we endured in the Year of the Hanging Chads.
All of which means that, since the media and the nation’s Marxist Party won’t allow the election to be called if Trump is winning, both the Covid-19 and the Election 2020 Twin Crises will continue to bleed Mr Market until the Democrats can declare some kind of win. And if they can’t, a national temper tantrum, led by the Antifa and BLM brownshirts will commence. It might not be a good year-end for the bulls. Headline terrorism will continue.
Monday’s stock market cliff dive could reproduce itself in the coming months
This is a great shame. Both the nation and Mr Market want to re-start the party that the coronavirus and the Marxists crashed this past March. But the elites, the globalists, the Marxists, and the vast zombified bureaucratic mob running the Washington Swamp have no intention of ever seeing America’s animal spirits rise once again. If this army of Orcs gets back in power this coming January, the Deplorables will, very soon, suffer a slightly Americanized version of what the Chi-coms have been doing to the Uighurs for the past several years. (Don’t ask.)
Yes, that’s a lot of politics once again for what’s supposed to be an investing column. But we’re making the case here that things will be extra treacherous for investors this week. And they’ll likely remain treacherous if we go through yet another vote-counting charade in which Blue State Governators hold all the cards. This sort of uncertainty – and the scare headline risk it engenders – tends to keep stocks trading in chaos mode.
Like insurance companies, stocks seriously hate uncertainty. And when investors are uncertain, that’s how they trade stocks, up, down and sideways. Value and earnings scarcely matter. The trading crowd just sits there in front of their computers or high-speed trading terminals and places bet after bet based on headlines. And since the headlines are largely based on rumors and fake news these days, those headlines are sure to be consistently negative, unless Sleepy Joe Biden and his invisible friends can stage a Biden Landslide, the likes of which we’ve only seen in 1932 (Roosevelt) and 1984 (Reagan, lest we forget).
Portfolio moves? Defensive maneuvers vs headline terrorism?
As for our portfolios, we’re playing it a bit risky this week. We’ve continued to unload weak positions, whether new or old. But, on the other hand, for perfectly good, profitable companies with still excellent outlooks, we’re using today’s horrendous downdraft to make tiny additions to our holdings today. If we’re making a mistake here, it’s better to make little ones rather than big ones.
Again via Fox, we point to this interesting tidbit. It’s gleaned from the mighty bankers at JP Morgan (NYSE: JPM), whose management has been tagged as anti-Trump.
“An ‘orderly Trump win’ would propel the benchmark S&P 500 index higher by 13% to approximately 3,900, wrote a team of JPMorgan strategists led by Dubravko Lakos-Bujas.
“Under that scenario, the strategist thinks deep value sectors like energy and financials could benefit due to a large short squeeze. On the other hand, they say a victory by former Vice President Joe Biden could cause investors to take profits in the high-flying tech stocks in preparation for an increase of the capital gains tax.”
That last sentence is what has a great many investors appropriately spooked this Halloween week. If it becomes a settled fact next January, today’s crash may look like a Sunday walk in the park for Mr Market.
But for now, let’s just be cautious and not think about such things.
–Headline image: Cliff jumping near the big cave at La Jolla Cove, with La Jolla Shores in the background. Photo and caption via Wikimedia commons. Original image by Jarek Tuszyński. Creative Commons Attribution 4.0 International license. Slightly cropped to fit CDN format.