The Waiting Game Part II

At current writing the S&P 500 is down over 1.75% on the day, bringing the week to date downturn to over 6.3%. Barring a late day, substantial rebound this will mark the worst week since March and the 4^th worst week of what has been a turbulent year. For the month, the S&P 500 is down over 3.5%, bring it close to down 10% from the highs set in early September. From a technical standpoint, the market action looks pretty poor. The rebound that took place in the early part of this month was decisively rebuffed, which also coincided with a failed attempt to take out the previous highs.

At the current level in the S&P 500, roughly 3240, the market is sitting on a precipice—should it break below this level we could see a decent bit of downside left before the next support at 3000. That being said, we are now entering the last two months of the year, which have historically been some of the best months for stocks on average. Synopsis: seasonally things are entering a good period, technically the market looks potentially dangerous.

From a more fundamental point a view, the market still looks pretty richly valued. Earnings season is drawing to a close and a number of the big tech names that have driven market returns this year disappointed. Apple, Amazon, Facebook, and Netflix to name a few all produced earnings reports that didn’t match the market’s lofty expectations.

Tuesday’s election concern remains a big overhang on the stock market. Hope for a stimulus package before the inauguration seems misplaced. Failure to reach a deal may illustrate the degree to which politics is no friend of the people—another example of how politicians’ best interest frequently don’t align with constituents’ best interest. While many may think that stimulus later is not much different than stimulus today, that may not be the case. The damage done to the economy and to business and unemployed workers struggling to make ends meet may become much greater in the next couple months as Covid re-lockdowns become a greater likelihood. Ultimately this will make the need for an even greater stimulus bill next year to offset the damage done by this fall’s failure. I’ve often believed, and this year further reinforces, that elections are very costly to Americans, and we have only our two parties to blame for it.

So, again, for now wait. We wait for stimulus. We wait for a vaccine or therapeutic. We will wait for election results. We wait for economic clarity. We wait for market clarity. It feels like we’ve spent the entire year on the tarmac waiting for the pilot to make his mind up to either take off or go back to the terminal. Hopefully, some more clarity will return, and life can begin to resume some normalcy. But that is for another day.

Thanks for reading,

Zach and Dave  

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