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Perspectives

Market doesn’t seem to be worried about the upcoming election only 10 days away

by Fortem Financial October 26, 2020

The equally-weighted Value Line Index (roughly 1700 issues) is right on the cusp of breaking out to multi-year highs, following consecutive declines of roughly -25% and -45% over the last 2+ years. This is about as good of an indication we have that participation is broadening under the surface. The recent outperformance from small-caps, trading to 5-month relative highs last week, is also suggestive of this positive shift. Continued improvement from credit – BB vs. BBB corporate spreads hit recovery lows on Friday – is also historically supportive for small-caps.

If there is reason for some tactical prudence, it comes from the message of very low put/call ratios just a week out from the election. What strikes us is how different this looks from the days leading up to the 2016 election… put volume was surging then, and it’s hard to keep a market down for very long when that’s the case. We’re not sure what would be the catalyst for a correction or consolidation – Blue Wave? Split Government? Trump wins? Contested Election? – but that’s not the point… the good news is the market is in a clear uptrend, different than the set-up that preceded the 2000 election chaos. By the time Election Day 2000 was here, the S&P was already in a downtrend – the die was likely cast no matter how Bush vs. Gore turned out.

It’s hardly pronounced, but Banks have shown some life over recent days – particularly vs. Gold and vs. REITs. Yields are up and a steeper curve no doubt helps, and we’re curious how 10 year treasuries respond to 200-day moving average resistance (the first time it has seen it nearly 2 years). The equity and macro tone all summer and fall has argued for higher nominal yields, and that remains our best guess today. Homebuilders have quietly started to soften as yields have pushed higher, though ultimately we view this as corrective vs. trend changing. Both the Autos and Hotels/Restaurants groups flipped positive in our relative trend work last week.

EITHER THE CONSENSUS IS WRONG OR STOCKS ARE NOT A VERY GOOD PREDICTOR OF THIS ELECTION

We copied the headline above straight from our October 18, 2016 report. At the time, stocks were down 2.5%, and, if the historical pattern held, stocks were indicating what seemed unbelievable at the time: that Trump would beat Clinton. Like today, investors believed that “other” factors were more important for stocks than the election, and the expectation that the Fed would begin to raise interest rates was weighing on stocks. Today’s debate is similar in that the explanation for stocks being up is due to “other” factors like monetary and fiscal policy stimulus coupled with the promise of vaccine approvals coming online.

As we enter into the second full week of Corporate earnings in the US, we are pleasantly surprised with where we are at. The market has had it correct, and if anyone is questioning the market rally, the data below should answer your questions:


Source: Strategas


Source: Factset

Sincerely,

Fortem Financial
(760) 206-8500
team@fortemfin.com

 

 

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The Five Star Wealth Manager award is based on 10 eligibility and evaluation criteria: 1) Credentialed as an investment advisory representative (IAR) or a registered investment advisor; 2) Actively employed as a credentialed professional in the financial services industry for a minimum of five years; 3) Favorable regulatory and complaint history review; 4) Fulfilled their firm review based on internal firm standards; 5) Accepting new clients; 6) One-year client retention rate; 7) Five-year client retention rate; 8) Non-institutionalized discretionary and/or non-discretionary client assets administered; 9) Number of client households served; and 10) Educational and professional designations. The inclusion of a wealth manager on the Five Star Wealth Manager list should not be construed as an endorsement of the wealth manager by Five Star Professional or the magazine. The award methodology does not evaluate the quality of services provided. Additional information about this award is available at: fivestarprofessional.com/2016FiveStarWealthManagerMethodology.pdf
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Data Sources: News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. Market Data: Based on reported data in WSJ Market Data Center (indexes); U.S. Treasury (Treasury Yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness.

Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. The opinions expressed are solely those of the author, and do not represent those of Fortem Financial, LLC or any of its affiliates. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful. Forward looking statements are based on current expectations and assumptions, the economy, and future conditions. As such, forward-looking statements are subject to inherent uncertainty, risks, and changes in circumstance that are difficult to predict. Actual results may differ materially from the anticipated outcomes. Carefully consider investment objectives, risk factors and charges and expenses before investing. Fortem Financial is a registered investment adviser with the SEC. Advisory services are offered through Fortem Financial.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighed index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indices listed are unmanaged and are not available for direct investment.

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