Coda. Stocks surged in yesterday’s session as the US hunkers down for today’s historic election. Continued recovery in manufacturing was cheered by stock investors who bought recovery stocks and shunned the pandemic darlings.
N O T E W O R T H Y
Red, Blue, GREEN. OK folks, we are almost there. Of course, we are not likely to know the final results of today’s election for days to come due to the overwhelming numbers of mail-in ballots that need to be accounted for. In a world which we have grown accustomed to having everything in almost an instant, having to wait to get closure on the election is going to be difficult. But rest assured, we will get a result one way or another. There are three scenarios that can play out from today’s election. Trump will either get four more years, or he won’t and the results will be clear in the next several days. Those are the first two scenarios. The third scenario is one in which we will have absolutely no clue who will be in the White House on January 21st… until January 20th. In that scenario, there is likely to be lots of legal wrangling, disinformation, conspiracy theories, name-calling, and yes… market volatility. But there is some good news, really. No matter who occupies which building in the nation’s capital at the end of January, odds are highly in favor that the much needed fiscal stimulus package will finally arrive. That package will boost the economy just as evidence has proved the CARES Act did. Moreover, lest we forget, the real enemy is the pandemic. Putting a lid on COVID is the only sure-shot way to ensure that the deaths will end and that the economy can reflate itself organically. The good news on that front is that the therapy trials are moving forward and will continue to move forward, despite which of the three scenarios plays out. Using history as a guide, we know that election years tend to end in the green on average over the past 70 years. In those years, November sees the best average returns, while December, still positive, finishes in third place. Now, clearly this is no ordinary year, so history may not be the best predictor. Remember the tight election of 2000? Hanging chads? That was a scenario three, as outlined above. The contested results of the Bush v. Gore election went all the way to the Supreme Court until we finally knew who the next president would be. That happened on December 13th, 2000... a little late… but it happened. So, no matter which scenario plays out, odds are that things will turn out OK. Stay safe and stay focused on your long term strategy.
Growth hormone. Remember why they are called growth stocks? Because investors expect them to continue to grow… fast… for many years into the future. Remember, by investing in a stock, we are technically buying the rights to future earnings, so if we expect those earnings to grow and grow, we would pay, well… more and more. That is why growth stocks which continue to deliver on that promise rise very quickly. But that quick rise comes at a cost: increased volatility. If companies slip up, well… you know what happens. They fall, and usually hard. Twitter (TWTR), one of those quintessential growth stocks has been in the news this week. The company announced earnings last Thursday and they beat estimates by +291.75%! Now THAT is impressive… but apparently not impressive enough, as its stock price tumbled by nearly -25% in the past two sessions. Similar scenarios have been playing out in the tech sector over the past few weeks as many companies which handily beat estimates have slipped. The pullbacks are most likely not attributed to those companies' failure to grow, but rather a reversion to the mean. Twitter had risen by +137% from its pandemic lows before falling late last week. It is still up by almost +20% this year. In fact, the tech heavy Nasdaq Composite Index is still up by +21.6% for the year, despite its recent pullback.
THE MARKETS
Stocks ran up gains yesterday on a strong manufacturing PMI and expectations that the election would be out of the way… hopefully soon. The S&P500 rose by +1.23%, the Dow Jones Industrial Average advanced by +1.60%, the Russell 2000 Index climbed by +1.96%, and the Nasdaq Composite Index traded up by +0.42%. Bonds rose and 10-year treasury yield gave up -3 basis points to 0.84%.
NXT UP
- Factory Orders (Sept) are expected to have grown by +1.0%, up slightly from the +0.7% growth in the prior month.
- Durable Goods Orders Final Read (Sept) is expected to be +1.9% in line with earlier estimates.
- Wards Vehicle Sales (Oct) may come in at 16.50 million vehicles compared to the 16.34 million deliveries in September.
- This morning, Eaton, Exelon, Humana, Johnson Controls, Emerson Electric, McKesson, and Wayfair beat estimates, while Bausch Health and Spirit AeroSystems missed. After the bell, we will hear from Prudential and KAR Auction Services.
- Today is election day… but you knew that already.