As expected, in the month of September, the markets experienced their first significant correction since those dire days of the beginning of the COVID-19 crisis. This correction especially hit the red-hot growth technology stocks the most. During the month, I unwound hedges and got back to work on identifying opportunities, tactically and strategically across all our strategies – Growth, Dividend Value and Index. Once again, my discipline and instinct paid off handsomely.
September was one busy month, for the markets and personally as the Jewish High Holidays consumed weekends and other non-workdays. Belatedly, Shanah Tovah to all my readers who did celebrate the Jewish New Year.
Software, video communication services and cloud services are en fuego. Just in the last few days, I added to positions in Teledoc (TDOC) and Cloudflare (NET). I expect the S&P 500 (SPX) to eclipse its old all-time high between today and the election.
The elephant in the room right now are the national elections which are just three weeks away. I will use today’s My Gut Feeling to provide my thoughts about what to expect in the markets and answer some readers questions (in general) with respect to the elections.
I do not have a crystal ball and try not to make political forecasts (though I have my opinions). I do try to forecast how markets react to elections. Recall that leading up to the 2016 election cycle: 1) I wrote about the eight election outcomes on Marketwatch. For the most part, you can substitute Biden for Clinton this time around; and 2) I spoke with Pimm Fox on Bloomberg Radio discussing how phony, manipulated, and unreliable polls are. The same can be said for 2020.
I was asked by a client whether it makes sense to sell stocks now ahead of the election, for fear that President Trump will lose. Unless someone has information which I do not have, it makes sense to react to election outcomes than try to get out in front of them. You will have plenty of time to react after the market’s first reaction to an election. The reasons are simple, maybe the market reacts differently than you would expect for a President Trump loss. Then you leave yourself vulnerable to being poorly positioned and maybe having a big tax liability.
I explain to people that right now, the market is pricing in a Biden victory with a Republican hold of the Senate. That is Scenario 2 from my Marketwatch article. It is a somewhat neutral outcome and one that forces both parties to work together.
Should a worst case Scenario 3 election outcome arise, then we have a bigger economic and stock market problem on our hands. While Scenario 3 was low probability four years ago, it is a much higher probability now – I estimate about 25%. The real scary aspect of this scenario for the markets will be a second economic shutdown and the immediate increase of personal and corporate taxes. While it will take months for the tax increases to be passed and take effect, the impact to the financial markets will be more immediate. Wall Street analysts estimate a decline of 20-25% in corporate earnings in the wake of increased taxes, ringing the death knell to the current bull market and economic expansion. Interest rates may rise helping bond investors and banks. Just remember, we will react to but not take preemptive action, even if Scenario 3 looks certain as we approach the election.
Finally, as was the case in 2016, especially with the Supreme Court hearings now taking place, anything can happen between now and the election. There might be more October surprises yet to come. So, just sit back and enjoy the “fun.” We can worry how to position for the election after it has taken place as trading and long-term investment strategies are certain to emerge.
It has been quite sad the last few weeks as many major league baseball stars / Hall of Famers from my youth in the 1960s and 1970s have recently passed away – Tom Seaver of the Miracle Mets; Whitey Ford, the Chairman of the Board for the great Yankee dynasty of the 1950s and 1960s; Bob Gibson, 2-time World Series MVP; Lou Brock who broke Ty Cobb’s all-time steals record; and this week Joe Morgan of the Cincinnati Reds’ Big Red Machine. Except for Ford, who retired after the 1967 season, I can vividly recall their 1971 Strat-o-Matic season cards. Parenthetically, Joe Torre was the MVP that year, hitting .352 (he had a great hitting card in the advanced version of the game). Another bit of trivia, Tommy Lasorda, is the oldest living MLB hall-of-fame inductee. Call me nostalgic if you must, but today’s brand of professional baseball, which began to go downhill during the PEDs years, is not as good as it was back in the 50s, 60s and 70s. One thing about baseball, it always brings out the kid in you.
Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView Asset Management, LLC was long MPC - although positions can change at any time.
Scott Rothbort is the President & Founder of LakeView Asset Management, LLC, (LVAM) an investment advisor representative, specializing in high net worth private wealth management. LVAM is affiliated with Kingswood Wealth Advisors Services, a registered investment advisor. 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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