So we’ve been terribly quiet in recent weeks since our call to exit the Nasdaq longs. There hasn’t been much happening in the US markets, except election-related news.
The election is now just one week away and we recommend staying light into the election and only making decisions post-election results, even if we have to pay up a bit in case of good news, or just stay on the sides in the case of bad news. There is no edge in trying to figure out an election result for a trader. This election has been marred by a lot of intimidation of Trump supporters, so it has become impossible to be sure if the polls are correct, or like 2016 there are Silent Trump supporters.
Most polls currently have a Blue Sweep penciled in for 2020. What would that mean for the markets?
Shorter-term a very large stimulus deal with money flowing directly to the poorer folks should be good for risk assets (that’s the bank consensus, not sure we would take the bait). On a longer-term basis, the Green New Deal won’t be cheap and will probably cause traditional energy prices to go to levels never seen before. Corporate Taxes are bound to go higher as well, making the S&P 500 more expensive than it already is. So Although there may be a pop higher if there is a Biden win, we think the USD will drop, Gold will fly and the US stock market will be a less favoured destination longer-term, and we will be looking for a rotation towards European based assets as these are not overly expensive in relation to US tech.
Here is the big but;
Are we to believe the polls that Biden is so far in the lead and this will not be a closely contested election? We don’t believe that to be the case, in fact another second surprise win by Donald Trump wouldn’t be a shock to us. In the case of a Trump repeat win, we believe the dollar may pop higher and Gold bulls will need to get squeezed out, as this is still one of the most crowded sectors.
Regardless of the outcome
On the other hand, a sector we are starting to like in the US that should be a winner regardless of Trump or Biden is small Banks in the US. We believe the yield curve will steepen in months ahead providing a tailwind for an improvement in bank margins post-election.
We will be back with more ideas for a portfolio as soon as the election dust settles.