Insights & Advice


The market’s Halloween fright

This has been the worst presidential, pre-election week for stocks—ever. But the worst may be over. October has come to an end. Now all we need to do is get through a presidential election and its aftermath, and hope that Americans come to their senses in dealing with this pandemic. That is a lot to hope for.

Prior to this week, the sharpest pre-election market decline on record dates back to 1932.  Given the apocalyptic campaign predictions of what will happen if the other guy wins, who could blame investors for getting spooked? But the real impetus for driving markets down by more than 5.6% in the first three days of the week has been the upsurge in coronavirus cases both in the U.S. and Europe.

Don’t say you haven’t been warned. For weeks, I have been advising readers to prepare for just such an occurrence. “Look to Europe,” I wrote as your clue to what could happen on the COVID-19 front in the U.S. in a few weeks’ time. Europe is quickly spiraling into shutdown mode as I sit here putting fingers to keyboard.

Despite some protests that we won’t follow Europe, it isn’t really up to us, now is it?

I am not going to reel off all the U.S. cities and states experiencing the resurgence of COVID-19. It wouldn’t matter anyway. Some of you would just dismiss these facts as political fiction, something you have been doing for months. America’s youth, looking on as their role models bicker, deny, or outright dismiss the dangers, have simply chosen to go their own way. For them, it is party time, and who cares if some old geezer dies from this thing anyway?

Others are simply fatigued and depressed. It is just too hard to comply, to maintain the vigilance that the medical experts are advising. “Besides, the holidays are coming. Let’s all just take a chance this one time, get together with the family, and hope for the best.” Sound familiar? It should. It is that kind of reasoning that has placed the U.S. on the verge of a real catastrophe. It is why the stock market cratered this week.

The coronavirus doesn’t care about any of that—not politics, parties, families, or your feelings.

As I predicted, nothing developed except additional recriminations from the weeks of negotiations between the White House and the Democrats. Both sides failed to agree on another stimulus package and predictably blamed each other. So here we are, on the verge of a medical crisis that could drive us back into an economic downturn, and once again, politics in America have taken precedence.

We are also in earnings season. Investors were worried that the FAANG—Facebook (F), Amazon (AMZN), Apple (AAPL), Netflix (NFLX), and Alphabet (GOOG)—stocks may be “topping out.” Thursday’s results for several of the FAANG stocks were in line or even better than expected, but investors sold most of them anyway. After eight years of leading the market, technology could be in for a time-out.

If so, what could carry the market forward? There are plenty of undervalued investment alternatives. Investors could rotate into value stocks, or maybe the commodity sector. Why not? Precious metals and mining stocks have been doing well. Small cap stocks, industrials, transportation, and even materials have, at times in the past, been market leaders. They could be again. Financial stocks might also find a bid.

The point is that right now, no one knows. Too much depends on what happens on November 3. The betting market still has Biden winning, as well as a “blue sweep” in the House and Senate. The odds have narrowed somewhat over the last few days, but they always do this close to an election. The bigger immediate risk to the market would be a contested election.

That could usher in a prolonged bout of political uncertainty. Some worry that it could also be accompanied by civil unrest, police action, and even the national guard. Walmart has already temporarily pulled some firearms from stores in certain areas, just in case. The stock market would not take kindly to those kinds of events. If such a situation dragged on for several weeks, history indicates stocks would decline until the results were clear.

In any case, those who care about their investment accounts should hope for a clear win by one or the other candidate. My next column will be after the elections. I have already voted along with 82 million Americans, so now it is up to you. Do your part and let’s be done with this!







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