Free Weekly Analysis: What the market thinks of a Biden presidency

Free Weekly Analysis: 

This week’s 7.3% gain was the best five-day performance since late March. Not bad for a market that was (allegedly) on the verge of collapse only a few days ago.

The biggest headline was obviously the presidential election. While stocks initially popped Wednesday morning following Trump’s unexpectedly strong performance, as the week wound down, Trump’s chances of scoring a second underdog victory were slipping away. Of the five battleground states still up for grabs, Biden has a modest lead in four of them.

But rather than retreat on Trump’s dimming prospects, stocks continued holding all of this week’s robust gains. It turns out the market is far more excited about the split government than who is going to occupy the White House. We got confirmation of that sentiment Friday morning when Georgia and Pennsylvania flipped blue and stocks barely budged. If this market feared a Biden presidency, stocks would most definitely not be holding steady near all-time highs.

Now that the election is (mostly) behind us, we get to shift our focus to what comes next. Which at this point is the dramatic surge in COVID infections. The U.S. and Europe are smashing previous daily records for positive tests and local governments are moving back into lockdown.

Will the economic damage from this second, larger COVID wave be as bad as this spring? Given stocks are within a few percent of all-time highs, most investors don’t seem worried about it. But that’s the problem with the stock market, things don’t matter until they do.

Can stocks surge to fresh records while the global economy is weighed down by another round of stay-at-home orders? Probably not. Unless there is a dramatic turnaround in these COVID infection rates, stocks will run into a ceiling near the old highs. Limited upside and lots of downside? It’s hard to justify that risk/reward.

Stocks are trading well and we have to respect that. But keep your trailing stops nearby and be ready to lock-in profits. Wait a few days too long and those gains will morph into losses.

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