You know that scene where a large tree stump gets shoved into the wood chipper and a mess of unrecognizable wood chips come flying out? That has been our October, with a handful of trading days left in the month.
It's an impossible mission to go through any trading year unscathed. As it stands now, October has been the month to challenge our strategy as we have been continually whipsawed from the start of the month.
The greater question, putting aside our relatively poor short-term performance, is determining where we will be creating returns into year end? We have had a great year, despite this setback in October. What got us here in the first place was catching a big move earlier in the year that few, if any, expected would come.
Any recovery that we will earn into year end will come from catching an extreme risk/reward opportunity that offers up insignificant risk that is only apparent in hindsight.
As it stands now, while it may seem like there is a lot of air beneath the market, there is a case to be made for the elections artificially compressing a Dow, S&P and Nasdaq that should have been much higher given the monetary stimulus that has seen the Fed balance sheet reach all-time highs last week and fiscal stimulus that, while being delayed in implementation, is sure to come in the weeks and months ahead.
In other words, investors need to ask themselves where the markets would be if this wasn't an election year? There is a very real argument to be made that the September top and the resulting grinding price action ever since has been an effect of the angst caused by the elections being imminent.
Once that angst is cleared away, irrespective of the outcome, the markets will be free to focus on what matters: earnings, economic recovery, monetary stimulus and fiscal stimulus. When all of these things are taken together, with very few if any investment alternatives to equities, there will be no choice but for investors to pile into the equity market into year end.
The elections have impeded the progress of the markets from late Q3 into early Q4. That impediment is about a week away from being removed. Clarity will bring with it the incentive to act in a manner that favors progress, while putting the uncertainty that has been with us for a majority of 2020 in the past. This is a bullish catalyst in and of itself.
The window for bears has closed. The bulls will rule the day post November 3rd.
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