The stock market took a turn for the turbulent in the last week or so, perhaps from the effect of the unwinding of bullish options bets, which appeared to help inflate further the big technology stocks that have dominated the market’s rally. Randall W. Forsyth writes that “there are other, more fundamental factors to consider along with this technical one, however.”
There is the matter of the election. The RealClear Politics average of opinion polls has narrowed but shows former Vice President Joe Biden with a 7.5-percentage-point lead over President Donald Trump. RealClear Politics’ average of betting sites put the two candidates in a virtual dead heat at the end of August after the Republican National Convention, but Biden’s lead was about in line with the site’s average of polls late this past week.
Confidence in polls isn’t great after they predicted Hillary Clinton would win the White House four years ago.
For the stock market, the 10 close elections in the post-World War II era have seen selloffs in the six to seven weeks before the election, according to a research note from Deutsche Bank’s strategists led by Binky Chadra… Investors should brace themselves for Election Week or Weeks, rather than Election Day, according to a J.P. Morgan client conference call. No clear winner may emerge on the night of Nov. 3 or even early the next morning, given the extra time that may be needed to tally mail-in ballots.
The Deutsche Bank strategists, meanwhile, find close elections have been followed by strong rallies averaging 5%, regardless of which party wins, as hedges against political risk are closed out. Futures on the Cboe Volatility Index, or VIX—also known as the market’s fear gauge—show expectations of increased volatility through October and diminished postelection volatility through December. Given the likely rise in voting by mail and the controversy over it, they suggest the market may be too sanguine pricing in a normal voting outcome, so they advise protecting portfolios into December.
MacDailyNews Take: Yup. This happens every four years. The market hates uncertainty.
Apple’s share price will bop around here for awhile. AAPL longs are used to some turbulence from time to time. Buckle up and enjoy the ride (or, if you have a weak stomach, try to sleep through it)! — MacDailyNews, September 9, 2020
[Thanks to MacDailyNews Reader “Fred Mertz” for the heads up.]