Alcoa (AA) officially opened earnings season with what was considered a disappointing report. One must understand that Alcoa is about to spit into two companies, so the earnings report really offered little or no investment value. With a slow boring market, traders needed something to bet on so Alcoa was the cockroach of the day. On Wall Street we used to joke that on slow days, traders would be so bored they would bet on cockroach races.
Then yesterday came disappointing economic data out of China, sending markets lower at the open. By the close most of the losses had shrunk. Most investors know that data out of China is unreliable and tainted by government manipulation. Once again, lack of any substantive domestic information or events, led to a day of cockroach races.
Investors are getting comfortable that Hillary Clinton will win the election. As a result, they are selling stocks which are bad in the Clinton playbook, such as biotechs and materials. This will set up the buy trades for stocks that will benefit from a Clinton election, such as retail or solar stocks. That buying could occur anytime between now and the day after the election. The risk is that she will lose. As I have been saying, be prepared to be contrarian as polls and the media are not representative of the entire voting population. In other words, keep your powder dry for now.
All told, the markets have slumped in the beginning of October. October is typically a positive month for the markets, ranked seventh out of twelve months for average return (+0.8) for the S&P 500 (SPX), When it comes to election years though, October tends on average to decline 0.7%. That is then followed by very strong positive returns in November and December, once the uncertainty has lifted. We should expect history to repeat itself in 2016. The last time that the SPX advanced in October of an election year was 2004.
As I mentioned earlier this week, today’s earnings from JP Morgan Chase (JPM) and Wells Fargo (WFC) will likely be meaningful. That means some serious market action is bound to ensue and the cockroach races will come to an end. John Stumpf, WFC CEO stepped down earlier this week after being pressured to do so in the wake of the company’s account opening scandal. This management development does not mean that WFC gets a free pass on earnings. In fact, I expect some reserves to be taken for the legal fallout from the scandal.
Next week earnings pick up. Monday and Tuesday are more Jewish High Holidays – Sukkot – but will not take away from market volume as did Rosh Hashanah and Yom Kippur. My daughter is coming out to visit us in Nevada for the extended holiday weekend. Wednesday is the final Presidential debate here at UNLV. My son, a senior at UNLV was selected to work the debate all week. I could not secure tickets. The town will be in lock down mode. I will be back with more commentary midweek. The other local news is that the Nevada Assembly is expected to vote sometime after midnight on the bill to build a stadium for the Raiders. I am getting prepared to get season tickets for the Black and Silver to go along with my Las Vegas NHL hockey season tickets.
Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView AssetManagement, LLC held no positions in stocks mentioned; although positions can change at any time.
Scott Rothbort is the President & Founder of LakeView Asset Management, LLC, a registered investment advisor specializing in high net worth private wealth management. For more information on investing with LakeView Asset Management, LLC call us at 888-9LAKEVIEW or request more information by clicking on the contact button on the top right hand corner of the website. LakeView Management, LLC is a Nevada LLC, with its principal office located in Henderson, NV and branch office located in Millburn, NJ
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