The Waiting Game

After Monday’s nearly 1.5% selloff following a weekend with no progress on a potential stimulus bill, the market traded in a narrow range, offering little in the way of future directional indication. The market seems somewhat trapped at the current levels, unwilling to make any concerted effort to move in any one direction for fear that the next headline would kill the narrative. Certainly, the market would like to see some headway on a new stimulus bill. However, it seems unlikely that the politicians will come to a compromise this close to the election. Rather, each side seems content to push the situation in a direction in which they can claim that the failure to reach a deal rest squarely on the back of the opposite side.

As we have highlighted on these pages numerous times, the market is definitely in search of continual stimulus to fuel the ride higher. Should the market fail to get what it wants it will be bound to pitch a fit like a five year old who gets his ball taken away. Additionally, the market is seeking some political clarity whichever direction that may be. I’ve mentioned before the market’s preference for one party control, which will increase the odds for larger stimulus. Perhaps the worst scenario for the market would be a divided congress and a Biden presidency as that will likely bring out the penny pinchers in the Senate. Should a divided congress be the outcome it would probably be met with an increase in monetary stimulus by the Federal Reserve. However, that may only come if congress fails to act, which may not be until after the new year. At that point, the market may have made its case heard in the form of a decent size correction.

As we sit now, the market (S&P 500) has gone almost nowhere since the beginning of September, making this week a small microcosm of the last two months—just one long waiting game. But the waiting game should all end in a couple of weeks, and the next concerted directional move should begin to materialize at that stage. Until then we wait.

Thanks for reading,

Zach and Dave  

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