Why the election doesn’t matter to the stock market

Free After-Hours Analysis: 

Tuesday was another wild ride for the S&P 500 as the index bounced between 3,780 and 3,860 before finally settling in the middle of the range, posting a respectable 0.6% gain.

The talk of the day is obviously focused on the election. Republicans are widely expected to take the House while control of the Senate is up in the air and odds are good a runoff or recount could delay the outcome for this chamber for days if not weeks.

But if Republicans gain control of the House, that means a split government and control of the Senate isn’t necessary to grind things to a halt. And while people complain about a dysfunctional government, the stock market loves gridlock because it means no one is changing the rules in the middle of the game. As far as the market is concerned, bad rules that can be counted on and priced in are better than rules in flux where no one is sure how things will turn out.

The market could experience further reflexive knee jerks over the next handful of hours as it frets over “voting irregularities” and such, but as I wrote previously, the stock market really isn’t concerned with politics this time around because it knows the Fed is the one controlling the economy. By Wednesday afternoon, expect the election to be old news for the market and it will go back to what it was doing before, which is obsessing over inflation and rate hikes.

If the market’s attention is going back to what it was doing before the election took over the airwaves, that means October’s rebound is back on and 4k is within reach.

As always, use trailing stops to protect our profits, but at this point, October’s rebound remains holdable with stops above Friday’s lows. Until we fall below that level, the rebound is alive and well.

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