Markets Finding Fewer Uncertainties After The Election

November 5, 2020 08:33 AM
A split Congress evades an egregious tax shift
FOMC statement and Powell press conference this afternoon
October unemployment report is due out tomorrow
Equity Index futures

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Wednesday's Close

E-mini S&P 500 Futures (December): Settled at 3435, up 73.50

E-mini Nasdaq-100 Futures (December): Settled at 11,763, up 497.25

U.S. benchmarks continue their melt higher. Although the election has yet to bring a concrete conclusion, former Vice President Biden is on the cusp of victory, and markets find fewer uncertainties. This starts with tax policy and the Republicans maintaining a majority in the Senate. A split Congress evades an egregious tax shift and theoretically keeps ‘endless debt printing’ at bay.

Endless debt printing at bay? We are already there, you might think. Nope, there was certainly a fear that a ‘blue wave,’ Democrats controlling all three branches of government, would pave the way for some version of Modern Monetary Theory. This would be different from pandemic stimulus as it would remain constant for well after the recovery. Such coupled with a persistently low growth environment leads to stagflation; more Treasury supply to create debt forces yields higher and inevitable inflation.

Furthermore, a split Congress reduces the likeliness of added regulatory measures on big tech. Ultimately, the market gets more of the same, and it has steadfastly worked. Leadership from Tech and Healthcare has been reinvigorated and layered with the idea of more ‘Work-From-Home’ due to lockdowns being the preferred Covid-19 cure by Democrats already in power. In other words, there are fewer uncertainties, and this is bullish.

As we await final election results, the Federal Reserve quietly steps into the spotlight. The committee concludes a two-day meeting at 1:00 pm CT with a policy statement, followed by Fed Chair Powell’s press conference. We anticipate Powell not to rock the boat and avoid decisive political questions; doing so will continue to pave a path of least resistance higher for the market.

Elsewhere on the economic calendar, the highly anticipated October Nonfarm Payroll results are due tomorrow morning. Earlier, the Bank of England boosted stimulus programs, and the EU slashed its 2021 growth forecast. Regardless, the U.S. Dollar is getting hammered and trading into two-week lows, which basically stand at two and a half year lows.

Bristol-Myers has followed up yesterday's massive day for Healthcare with an earnings beat on the earnings front. The stock is up nearly 2% ahead of the bell. Our wealth management arm at Blue Line Capital found our earlier discussion on fewer uncertainties a green light for Healthcare and broadly bough IHE and IHI yesterday, iShares Medical Devices and Pharmaceutical ETFs.

General Motors is another to repots amid a deluge of results. The carmaker is up 6% premarket after Adjusted EPS crushed estimates, buoyed by strong truck sales, and the CEO added favorable fourth-quarter guidance.

All in all, we remain cautiously bullish, but traders must acknowledge that markets rarely move in a straight line, and it is of the utmost importance to manage risk when trading leverage. Email us at info@bluelinefutures.com if you want to be connected with our wealth management office to discuss your investment portfolio.

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