Free Weekly Analysis

Free Weekly Analysis: 

The S&P 500 lost half a percent this week as it consolidates gains near recent highs. While not a great week, such a minor pullback near the highs and in this dubious headline environment is actually a constructive sign. Overbought markets tumble from unsustainable levels quickly and so far that hasn’t happened here, suggesting stocks are neither overbought nor unsustainable.

As much as investors are looking forward to another round of Covid stimulus, it appears that won’t get done before the election. But as I wrote previously, the market isn’t overly concerned about a week here or there as long as it looks like something will get done eventually. If the timing was critical to the market, we would have seen far more dramatic swings as these negotiations dragged on. Instead, most owners shrugged and kept holding their favorite stocks.

With little more than a week to go before the election, we shouldn’t expect a lot from the market between now and then. If the polls, Supreme Court, or even the outcome of the election mattered, we would have seen far more volatility show up in the price action. Instead, most investors seem pretty content with what they see and are comfortable holding for higher prices.

In my opinion, the biggest near-term risk is a wave of sour-grapes selling by supporters of the losing candidate. This could trigger a near-term dip in the hours and days after the election, but this is typically a fleeting phenomenon. Once those sore-losers finish giving away their stocks at a discount, supply will dry up and prices will bounce.

On the other hand, if the election goes off without a hitch and we know the winner Wednesday morning, stocks could actually rally in relief that we avoided a constitutional crisis.

Dip or no dip in the days after the election, expect stocks to trade well for the remainder of the year.

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