11/9/2018 Weekly Update: The Election's Over Now What
by Zach Marsh on Nov 9, 2018
S&P 500 +2.13%
10 Year Treasury +0.20%
Weekly Update: The Election is Over, Now What?
If the market had been suffering from the overhang of uncertainty of the midterm elections, we can now say: that’s out of the way. While it may be convenient to blame the October sell-off on the elections, it all may be coincidental. However, on Wednesday, the market did respond positively to the results, preferring gridlock to unchecked spending. That rally was short-lived, and over the course of the last two trading days, the S&P 500 gave back much of the gains achieved on Wednesday.
Only time will tell if the “Election Rally” was the final thrust higher in the relief rally that began October 30th. The test for the market was never if we could rally from the depths of the October “despair,” but rather how the market responds as it gives back hard fought ground achieved over the last two weeks. The S&P 500 Index’s first test will be 2750, followed then by 2700. If the market finds support at one of these two levels, it may resume its upward march. However, if it breaks through 2700 we could be on our way back to test the lows from October. Either way, I would expect choppy markets over the next couple weeks.
One thing that bodes well for the market is that the holiday season is typically a good time for the stocks. Since 1950, November and December represent the months with the highest average monthly returns. Should we get seasonal support for the market, the rally may carry the S&P back up close to the old high levels around 2900, or 4.5% higher than today’s prices.
Ultimately, my gut tells me, that the pick-up in volatility witnessed since February is part of a long-term “rounding off” period for the market. Think of market tops resembling hills rather than mountain peaks. We can get large spikes up and down, but when we assemble all of these “spikey” corrections together they form a rolling over pattern, much like a hill. Similar patterns emerged preceding the bear market in 2001 and 2008; violent corrections with recovering rallies, playing out over a number of months. In 2008, this “rounding off’ period began in August 2007 and lasted until the end of December 2007, before it began its concerted, precipitous drop of 53%. At the end of the tech bubble, the “rounding off” period lasted from about July 1999-February 2001, before yielding to the bear forces.
My own personal theory is that the length of the preceding bull market impacts the length of the topping out period. The longer, more sustained the bull market, the longer it takes to tip over. If the market makes it until March next year without a 20% correction it will mark its 10th anniversary. This is an extremely long bull market. Therefore, the “rounding off” period may last a little while longer.
Thanks for reading,
Zach and Dave
All opinions are subject to change without notice. Neither the information provided nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Past performance is no guarantee of future results. Tax laws are complex and subject to change. Calibrate Wealth LLC, does not provide tax or legal advice and are not “fiduciaries” (under ERISA, the Internal Revenue Code or otherwise) with respect to the services or activities described herein except as otherwise provided in writing by Calibrate Wealth. Individuals are encouraged to consult their tax and legal advisors (a) before establishing a retirement plan or account, and (b) regarding any potential tax, ERISA and related consequences of any investments made under such plan or account.
This material does not provide individually tailored investment advice. It has been prepared without
regard to the individual financial circumstances and objectives of persons who receive it. The strategies
and/or investments discussed in this material may not be suitable for all investors. Calibrate Wealth
recommends that investors independently evaluate particular investments and
strategies, and encourages investors to seek the advice of a Financial Advisor. The appropriateness of a
particular investment or strategy will depend on an investor’s individual circumstances and objectives.
Investing in commodities entails significant risks. Commodity prices may be affected by a variety of
factors at any time, including but not limited to, (i) changes in supply and demand relationships, (ii)
governmental programs and policies, (iii) national and international political and economic events, war
and terrorist events, (iv) changes in interest and exchange rates, (v) trading activities in commodities
and related contracts, (vi) pestilence, technological change and weather, and (vii) the price volatility of a commodity. In addition, the commodities markets are subject to temporary distortions or other
disruptions due to various factors, including lack of liquidity, participation of speculators and
Foreign currencies may have significant price movements, even within the same day, and any currency
held in an account may lose value against other currencies. Foreign currency exchanges depend on the
relative values of two different currencies and are therefore subject to the risk of fluctuations caused by
a variety of economic and political factors in each of the two relevant countries, as well as global
pressures. These risks include national debt levels, trade deficits and balance of payments, domestic and
foreign interest rates and inflation, global, regional or national political and economic events, monetary
policies of governments and possible government intervention in the currency markets, or other