Gridlock is good! | Crouch Connection, November 2020 "ADV"
GRIDLOCK IS GOOD!
The most consequential Presidential election of our lifetime is now behind us. Of the three election scenarios we outlined in our August letter, it appears that the market is betting on the third option we mentioned and most favorable outcome…a divided government with the Presidency and the House won by the Democrats with the Republicans currently being favored to win the majority (barely) in the Senate.
BLUE WAVE JITTERS REVERSED
The dreaded “Blue Wave” that the polls had been predicting prior to election day clearly did not occur. Phil Orlando at Federated suggested that the almost 10% decline in the S&P 500 from October 12 through October 30 was likely pricing in the Blue Wave being predicted by the polls which could have resulted in a sharp swing toward socialism which would have been an unfriendly outcome for businesses. Stephen Auth, Chief Investment Officer at Federated said it like this:
“Last week’s election outcome was really a Goldilocks scenario for the markets. Divided government means we are likely to get more fiscal spending, the one thing both sides probably can agree on, but no growth-impeding tax hikes and other progressive agenda items. Though the Senate could still go to a 50-50 tie should the Democrats take both Georgia runoff elections, that outcome seems improbable and even if it happened, the very slimmest control of the upper chamber by the Democrats would insure that a radical left policy shift would be unlikely.”
In addition, possibly the most favorable result is that we now have some certainty about our future political leadership. More than likely the Democrats and the Republicans will now be able to agree on a stimulus package which we need to keep our small businesses and unemployed workers afloat until we can stamp out the virus.
The possibility of a far-left agenda leading to many business-unfriendly outcomes is now seems to be off the table. In addition, a Biden Presidency probably means that trade policies with China might be less confrontational, or as Gavekal suggested, will be “less disruptive” for companies that do big business in China, and positive for the markets short term.
VACCINE NEWS A GAME-CHANGER
November has also brought good news on the Covid-19 front, with Pfizer and Moderna announcing game-changing results from their Phase 3 trials for their coronavirus vaccines. With over 90% efficacy, much better than expected, hopes are now high that we will be able to return to normal within a few months. And other vaccine test results are imminent which will hopefully add to the availability and the speed with which we can attack the virus.
Other reasons for optimism include the Fed’s recent commitment to provide low interest rates for an extended period of time, allowing the economy to fully recover before we need to begin worrying about an untimely rate hike from them. No signs of inflation have appeared to dampen the celebration and “TINA”, an acronym meaning “There is no alternative” reflects a school of thought suggesting that investors will not be able to meet their income and investment needs from CDs or bonds and will be almost forced into stocks to meet those needs.
All eyes will be on the Georgia Senate runoff elections between now and January 2, and the media can be counted on to generate as much controversy as possible between now and then, so tighten your seat belt and be prepared for some volatility in the markets.
The Dow Index’s over 12% rally since the first of November (as I write this) appears to be celebrating the delicious combination of market-friendly news we have recently received and thrusts like this have often preceded good years in the markets. Therefore, we believe a balanced portfolio containing both stocks and bonds should continue to ride the waves of the markets and meet the needs of most investors.
In any event, we enjoy the calls we receive from our clients and encourage you to call any time you have a concern. We are very thankful for our amazing clients and their families. Please be safe and have a wonderful Thanksgiving.
Branch Operations Manager
“If you don’t find a way to make money while you sleep, you will work until you die.” ~
Any opinions are those of Dave Crouch and not necessarily those of RJFS or Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stock of companies maintained and reviewed by the editors of the Wall Street Journal.