How The Election (And A 3rd Wave) Could Impact The Market
As I noted last week, I’m taking the next few months one week at a time.
In fact, when it comes to the stock market, that’s the only thing I’m really comfortable with right now. One reason is the upcoming election. Based on everything we’re hearing about the ballot counting process, it could take days or even weeks before we know the results. And that could lead to major market uncertainty.
I know I’m not alone when I say this scenario has me thinking back to the 2000 election and the results of Bush vs. Gore. That election wasn’t decided until December 12 when the Supreme Court ended the recounts. The chart of the S&P 500 below shows how the market responded during that time.
That election was held in a bear market. As it became clear the candidates would slug it out in court, the S&P 500 dropped 9.9%. After the Supreme Court announced its decision in December, the index fell another 9.9%. It seems likely both drops were related to the election… but only the first is relevant to the current situation.
It’s possible the election will be close. It’s even possible the election could reach the high court again. If that happens, I expect the stock market to mirror the action we saw in 2000. If the courts are deciding the election, there will be a great deal of uncertainty and the stock market is likely to drop.
It’s also possible — even likely — that the outcome will be clear on Election Day. Even if counting and recounting continue for weeks, the outcome may still be clear. This clarity could lead to a rally in the stock market, no matter which candidate wins.
A Third Wave?
With the precedent in mind, you can see why I am focused on just one week at a time for now. But there is even more to focus on in the short term. There appears to be a third wave of the coronavirus unfolding, and that could lead to more economic shutdowns.
CNBC is reporting that the United States is staring down a “substantial third wave” of coronavirus cases.
The New York Times has done outstanding work creating graphics that explain the virus’ spread. The first chart below shows the buildup of the potential third wave.
Source: The New York Times
The next chart shows the westward progression of the disease.
Source: The New York Times
With the disease spreading, there are possibilities of localized shutdowns in the next few months. This indicates the economy could take another dip in the fourth quarter. That would delay the recovery even more.
Closing Thoughts
In the long run, the election and the virus offer reasons for investors to be concerned.
However, in the short run, there is potential for a quick rally in the stock market. I’ve been closely watching a few price levels lately, and the first level (3,550) was reached last Monday. From there, the S&P 500 pulled back.
I believe it’s possible we’ll see a new high in the next few days. The next level I’m watching is just below 3,600 (dashed line). That would require a rally of about 3%. The index has moved by at least 3% in six of the past seven weeks, so a new high is certainly within reach.
News will drive the market this week, and that makes it a trader’s market. Long-term investors should wait for a better entry point, which is likely to develop in the next few weeks.
In the meantime, I just got through watching my colleague Jim Pearce’s a brand-new video presentation…
In it, he talked about the troubling conditions that are developing with a handful of well-known stocks. And according to Jim, they’re ripe for a big-time fall.
If you haven’t seen it, there’s still time to catch it before we have to take the video down.
When these stocks start plunging, a lot of investors are going to panic. But you can actually profit from this by using a simple but effective technique that Jim’s been using for years.
Jim’s presentation will tell you how. In fact, he’s already released his first set of trades.