1. Moving the markets

The “buy everything” mantra continued today extending the election week rally on beliefs that the current dilemma might result in a divided government, with the powers of the president/congress being offset by the opposing party controlling the senate.

The bullish reaction to the results so far “may have been due to the fact that Republicans appear likely to retain a majority in the Senate, something that will make it hard for Biden to proceed with the tax increases and stricter regulations he promised,” said Charalambos Pissouros, senior market analyst at JFD Group, in a note.

Even though analysts had originally claimed that a “blue wave” sweep of the White House and the congress was being priced in the market, when, suddenly the possibility of a split government seemed “market pleasing” giving power to the bullish cause.

Despite the WH outcome far from being certain, traders are confident that much of the election uncertainty has passed, and the worst possible outcomes seem to have been avoided. At least for the moment, this viewpoint prevails, yet it could change in a hurry.

ZH added this succinct spot-on tweet:

A disputed election is bad for stocks

Legislative gridlock is bad for stocks.

But the combination of the two is great for stocks

In the end, stocks soared led by the Nasdaq, bond yields tanked, and the US dollar got clobbered. The combination of lower bond yields and a declining dollar was like pouring fuel on the fire for gold, which ripped higher with spot gold actually outperforming the major indexes for the session.

Of course, as great as this rally feels, we must be aware that much is hype and not based on economic fundamentals, as this separation of “soft” vs. “hard” survey data shows. Additionally, the SMART money is not participating at all, and has not since August, which is demonstrated in this chart.   

That’s why our exit strategy will always be an ever-present component of our Trend Tracking strategy.

1. Moving the markets

The future markets engaged in a wild roller coaster ride, as election odds shifted from one contender to the other and back. As expected, no winner was declared with skepticism over the outcome remaining, but there appeared to be no doubt that the Senate would remain in Republican hands, which crushed hopes for a Blue Wave.

“I think the big news for the markets right now at least as it looks preliminary is that there’s not going to be a blue wave, which is generally supportive for markets,” said Mike Lewis, managing director of U.S. equity cash trading at Barclays, on CNBC’s “Squawk Box.” “I think that the outlook going forward for markets is this is going to be more about policy and the Fed than it’s going to be about politics, which is a good thing for markets.”

None of that early volatility was present during regular session, as the bullish theme prevailed, despite the White House race heading into extra innings. Equites went straight up with the Nasdaq reaching its daily limit causing the exchange to pause for a few minutes. I took advantage during a lull to increase our equity exposure in the tech sector, which had been beaten up more than any other during the October debacle.

In the meantime, both contenders exchanged verbal blows as to who had won the election, adding again to uncertainty, however, the markets were not affected by the rhetoric.

Wild swings were seen in many areas, such as the US Dollar, 30-year bond yields, as well as gold, which managed to crawl back above $1,900 after an extremely volatile 12 hour period.

Even professional traders were flabbergasted as to where this market might go, causing ZH to publish this spot-on headline:

“Frazzled Traders Turn To Booze, Tear Up The Script And Just Buy Everything”

That pretty much sums up today’s sentiment. With no WH election decision on the horizon, who knows what’s in store for tomorrow.

1. Moving the markets

Yesterday’s rally continued based on hopes that a clear winner would emerge from today’s election and that a much-feared contested result could be avoided.

MarketWatch saw it this way:

The bounce back from the worst week since March is supported by bets former Vice President Joe Biden will beat incumbent President Donald Trump, and Democrats at the same time will take control of Congress, raising the possibility of further financial relief for businesses and individuals stricken by the COVID-19 pandemic, analysts said.

Of course, the opposite outcome is presented via headlines like this:

“JPMorgan Sees S&P Tumbling To 2,500 In Case Of Blue Wave, Surging To 3,900 If Red Wave”

Most shorted stocks were squeezed thereby adding power to the rally, with SmallCaps leading the way, closely followed by the Dow.

ZH presented an interesting stat in that a rising market has tended to precede a victory for the sitting party 86% of the time since 1928, a theory which proved spot on in 2016:

Amid all the polls showing Hillary Clinton’s dominant lead over Trump, the equity benchmark fell for nine straight days before the election week, cementing its three-month performance into negative territory.

Gold put up a nice performance supported by a falling US Dollar, thereby erasing last week’s plunge and climbing back above its $1,900 level.

In the end, uncertainty reigns, and should tonight be contested, history from the year 2000 disputed election suggests that bonds will rally while stocks get slammed, according to ZH.

Looking at the big picture in this entire idiocy of fake news and market manipulation, I agree with Buckminster Fuller, who said:

If you take all the machinery in the world and dump it in the ocean, within months more than half of all humanity will die and within another six months they’d almost all be gone; if you took all the politicians in the world, put them in a rocket, and sent them to the moon, everyone would get along fine.

1. Moving the markets

Prophecies about which of the two Presidential contenders would give Wall Street more of what it needs to keep the bullish dream alive, namely continued reckless money creation, prompted ZH to post this succinct summary:

After reading months of ridiculously goalseeked Wall Street commentary, where first a Trump victory was the best outcome for stocks (at a time when Trump was seen as a favorite to win), then a Biden victory becoming the best-case outcome for risk assets (this predictably emerged around the time Biden took a lead in the polls), then a Blue Wave emerging as the most bullish outcome (around the time a Democratic sweep became the most likely outcome according to polls), and then following a brief detour when Wall Street briefly freaked out about Congressional gridlock when a split Congress suddenly became an all too real possibility, we went full circle and a Trump victory once again became the most bullish outcome (according to JPMorgan), traders and analysts would simply roll their eyes and snicker whenever a new “scenario” emerged from Wall Street’s strategy desks.

Yes, what it comes down to is this: Additional gloom and doom and catastrophes seem to guarantee the world only one thing, that is MORE STIMULUS! It’s pretty sad to realize that economies and fundamentals no longer matter with stock markets around the world being powered only by the generosity of those in charge of monetary policy.

Be that as it may, traders were relieved that the month of October did not turn out worse than what we saw, optimism prevailed, and the major indexes rallied into November. Lagging the bunch was the tech sector, which dipped into the red mid-day but managed to recover in the end.

The bullish theme was in part inspired by perceptions that maybe, just maybe, we were oversold last week, and that we might be electing someone tomorrow without much feared delays. Given recent reports, that indeed would be a tall order.

Gold performed well today, with GLD up almost 1%, and that in the face of a rallying US dollar, which as of late has taken the starch out of Gold’s upward momentum. I am not sure yet, if this is a harbinger of things to come.

Certainly, I expect market volatility to skyrocket, should the election outcome be postponed.