The Election Outcome And Your Portfolio

Posted: Nov 06, 2020 12:26 PM
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The Election Outcome And Your Portfolio

Source: AP Photo/Richard Drew

It’s been a strong week that has held up even after the Federal Reserve meeting happened without any action. But they promised to “use its full range of tools to support the economy.”

Jay Powell lamented about the lack of fiscal help, which must have stung even more after the UK government extended emergency measures into next March, offering benefits that cover 80% of incomes of furloughed workers. Meanwhile, his colleague at the Bank of England (BOE) also announced additional accommodation.

Even before yesterday’s BOE move, global central banks had printed $24.0 trillion to keep the world out of a Great Depression. One day, that has to be drawn down, but not before the tally climbs even more.

To see the chart, click here.

U.S. Government Must Print Too

During the question-and-answer period, Powell mostly dodged questions about fiscal stimulus. However, reiterated that a stimulus is needed and needed now. Perhaps it will happen, but any package out of Congress will be much less than what Powell was hoping for, and this means he has no choice except to push the envelope as far as he can.

On that note, Senate Majority Leader Mitch McConnell favored a so-called skinny fiscal bill worth around $400 to $500 billion. But I think he might make overtures, including some state aide that lifts the tally to $1.5 trillion. That’s the number I predicted way back in July, so it would be interesting, and make you wonder why it took so long.

Note: each day without fiscal accommodation sees structural irreversible damage.

Perhaps, this is why he continues to emphasize that inflation will rise well above 2.0% at some point, be allowed there, and averaged out with prior levels before the Fed steps in. At this time, that conversation is almost a moot point, considering it will be many years before we see the next rate hike.

Message of the Market

What a huge day for Materials, as it outshined Technology and Financials that rebounded along with the ten-year yield. The bounce in yields and Materials suggests the Fed will step up to the plate. I thought reopening stocks, like airlines (Gol Linhas Aereas Inteligentes S.A. (GOL) and United Airlines (UAL)) and restaurants (Dine Brands (DIN) and Darden Restaurants (DRI)), were intriguing, and I am not sure why they enjoyed such a great session -even better than ‘work from home’ names.

To see the chart, click here.

Today’s Jobs Report

Ahead of today’s government jobs report, I took a deep dive into the ADP report, which came in significantly below the consensus estimate.

ADP counted a 365,000 private-sector job increase in October - Wall Street was looking for 600,000. The news didn’t impact the stock market, which was preoccupied with other stuff.

To see the chart, click here.

I think there is a massive disconnect between the jobs number and the labor force. Areas of good-paying employment saw sharp month-to-month declines in jobs, despite data that points to continued robust growth and demand.

Blue Collar Opportunities









Trade & Transportation



I mentioned earlier in the week driving to work, I heard frequent ads for truck drivers from Schneider and Walmart. And just last night, I read how desperate the industry is for workers. 

Apparently, the industry is down 73,200 drivers from a year ago to 1.45 million and another 30,000 have been sidelined from Covid-19. The industry is offering higher pay, but it also plans on hefty price increases in 2021 (FedEx, 4.9% increase).

Hotline Model Portfolio Approach

Yesterday, we added new positions in Consumer Discretionary and Industrials in our Hotline Model Portfolio.

Election Outcome & Your Portfolio

We will be focused on the jobs report, but also hope for a resolution on the Presidential election contest. I continue to reiterate, as long as the GOP holds the Senate, a Joe Biden win would be hard-pressed to get through most of the drastic economic promises made during the campaign. 

On that note, it would be a huge mistake to get out of the stock market. The fact is, even if there is a ‘Blue Wave,’ I would be in the market because there are going to be winners. It would be more difficult to find them, but the best-positioned companies could see a massive windfall from all the cash already in the system that only needs a spark to break the dam.

Today’s Session

Our initial glance at the jobs report shows there are a lot of impressive and encouraging aspects to it, including 906,000 private sector jobs.  

We will have more details on the note.  Meanwhile, earnings continue to crush it and upside guidance is far outpacing downside.  

A possible runoff for the Senate Perdue race in Georgia is causing some concern, although the dynamics would be different in such a scenario with mostly in person voting.  But a lot of outside money would pour into the state of Georgia. 

I still think there is a 90% chance Perdue and Loeffler will win their respective elections, but it would gnaw at the market.  

We see some early profit-taking as well.  On the election front, I think it will be called for Biden in the next 24 hours. I think President Trump will seek certain remedies that any candidate would under similar circumstances, but he will not take it further.