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Morning Commentary

UNKNOWNS CROWD OUT THE KNOWNS

By Charles Payne, CEO & Principal Analyst
10/29/2020 9:35 AM

Wednesday’s session was doomed from the start, and when the dust settled, only 16 names on the S&P 500 were higher. The “best” performing sector was Real Estate -2.22%, while Technology edged out Energy for the dubious distinction of the worst performer. The bottom line: it was an ugly session.

I am surprised at the depth of selling in the last two sessions in Industrials, and a little less surprised about Health Care. Meanwhile, Energy trades like the industry could go out of business before inauguration day.

S&P 500 Index

-3.53%

Communication Services XLC

-3.93%

Consumer Discretionary XLY

-3.16%

Consumer Staples XLP

-2.92%

Energy XLE

-4.18%

Financials XLF

-2.56%

Health Care XLV

-3.17%

Industrials XLI

-3.28%

Materials XLB

-2.82%

Real Estate XLRE

-2.22%

Technology XLK

-4.24%

Utilities XLU

-2.91%

I still think the biggest reason for the selling was the greater realization of a Biden win. There are however some fundamental issues beyond policies that would slow the economy and hit corporate earnings.  

Congress blew it on the stimulus, and I warned this would happen. I took on every guest on my show, from lawmakers that didn’t see the need for more stimulus, to economic purists worried about higher debt. 

It is just crazy to ignore the economic damage, even amid the dynamic rebounds in many niches of the economy. Just like lockdowns, they create damage that cannot be reversed each day. Having to wait for stimulus leaves a trail of hollowed-out carcasses of once-thriving businesses and (former) employees.

Blind Spot

I know investors like as little uncertainty as possible because it means less work for them to think for themselves. What’s left is the worry that begins to crowd out common sense and conventional wisdom.  In this case, conventional wisdom; we will get a fiscal stimulus and a vaccine, and markets have rallied under presidents from both political parties.

This opaque wall of uncertainty fosters panic and leaves serious blind spots.

The absence of a security blanket certainly led to selling, which led to more selling, and those tickets triggered programs that only hastened the move to the downside. 

Trading stop losses were tipped, which sent stocks lower and tripped more stop losses. Talk about a negative feedback loop.

Would-be buyers remain on the fence and the pendulum of fear swings from missing the move to losing a lot of money. The irony is fear of losing money often causes the largest money losses.

Be Cool

I know most investors take positions with the goal of buying and holding and reacting to fundamental news. But when there is a string of ugly sessions, buyer’s remorse and second-guessing wreaks havoc on the mind. 

Now, these same investors want to play hopscotch with the market, thinking they can move in and out based on daily moves. This desire for newfound nimbleness is unrealistic and an exercise in futility.  Interestingly, I had more folks asking about buying the March dip thant I had in the last three sessions. 

I suspect more downside will bring out those folks looking to make money because they know all the worries of the market are not new, insurmountable, or long-lasting. I think the structural damage will be more severe than the market damage. Unlike our lawmakers who have let the nation down again, I say to individual investors to be cool.

And get ready to pounce because we have arrived at oversold conditions already. We just need a spark.

Mounting Damage

There are now more losers than winners on the NASDAQ Composite:

Hotline Model Portfolio Approach

We have raised a little more cash yesterday, and we are busy assessing current positions, especially those that posted great results but are still lower. We are going to stay true to our investment approach and adhere to the value proposition presented by underlying fundamental trends.

Wednesday’s session was doomed from the start, and when the dust settled, only 16 names on the S&P 500 were higher. The “best” performing sector was Real Estate -2.22%, while Technology edged out Energy for the dubious distinction of the worst performer. The bottom line: it was an ugly session.

I am surprised at the depth of selling in the last two sessions in Industrials, and a little less surprised about Health Care. Meanwhile, Energy trades like the industry could go out of business before inauguration day.

S&P 500 Index

-3.53%

Communication Services XLC

-3.93%

Consumer Discretionary XLY

-3.16%

Consumer Staples XLP

-2.92%

Energy XLE

-4.18%

Financials XLF

-2.56%

Health Care XLV

-3.17%

Industrials XLI

-3.28%

Materials XLB

-2.82%

Real Estate XLRE

-2.22%

Technology XLK

-4.24%

Utilities XLU

-2.91%

I still think the biggest reason for the selling was the greater realization of a Biden win. There are however some fundamental issues beyond policies that would slow the economy and hit corporate earnings.  

Congress blew it on the stimulus, and I warned this would happen. I took on every guest on my show, from lawmakers that didn’t see the need for more stimulus, to economic purists worried about higher debt. 

It is just crazy to ignore the economic damage, even amid the dynamic rebounds in many niches of the economy. Just like lockdowns, they create damage that cannot be reversed each day. Having to wait for stimulus leaves a trail of hollowed-out carcasses of once-thriving businesses and (former) employees.

Blind Spot

I know investors like as little uncertainty as possible because it means less work for them to think for themselves. What’s left is the worry that begins to crowd out common sense and conventional wisdom.  In this case, conventional wisdom; we will get a fiscal stimulus and a vaccine, and markets have rallied under presidents from both political parties.

This opaque wall of uncertainty fosters panic and leaves serious blind spots.

The absence of a security blanket certainly led to selling, which led to more selling, and those tickets triggered programs that only hastened the move to the downside. 

Trading stop losses were tipped, which sent stocks lower and tripped more stop losses. Talk about a negative feedback loop.

Would-be buyers remain on the fence and the pendulum of fear swings from missing the move to losing a lot of money. The irony is fear of losing money often causes the largest money losses.

Be Cool

I know most investors take positions with the goal of buying and holding and reacting to fundamental news. But when there is a string of ugly sessions, buyer’s remorse and second-guessing wreaks havoc on the mind. 

Now, these same investors want to play hopscotch with the market, thinking they can move in and out based on daily moves. This desire for newfound nimbleness is unrealistic and an exercise in futility.  Interestingly, I had more folks asking about buying the March dip thant I had in the last three sessions. 

I suspect more downside will bring out those folks looking to make money because they know all the worries of the market are not new, insurmountable, or long-lasting. I think the structural damage will be more severe than the market damage. Unlike our lawmakers who have let the nation down again, I say to individual investors to be cool.

And get ready to pounce because we have arrived at oversold conditions already. We just need a spark.

Mounting Damage

There are now more losers than winners on the NASDAQ Composite:

Hotline Model Portfolio Approach

We have raised a little more cash yesterday, and we are busy assessing current positions, especially those that posted great results but are still lower. We are going to stay true to our investment approach and adhere to the value proposition presented by underlying fundamental trends.

Today’s Session

Initial jobless claims declined to 751,000 from 791,000 beating the street consensus of 775,000.  Didn’t like that 360,000 applied for Pandemic Unemployment Assistance up from prior week.

United States Initial Jobless Claims

Continuing claims dropped to 7,760,000 to the lowest level since March.

United States Continuing Jobless Claims

3Q GDP

33.1 estimate 32.0

Durable +45.4

Non-Durable +82.2

Domestic Investment

Government

United States GDP Growth Rate


Comments
Is it Possible for Gains before Election based on GDP an Better Unemployment#s Etc..including Polls lookn bettr for President

Anthony aka Kous on 10/29/2020 8:57:39 AM
I am NOT surprised we are hitting the $DJI 200MA this week. Tin foil hats on say that the market movers with a certain political bias that goes against the current administration have chosen to sell a whole lot this week. Look at the great news we had this morning and it still doesn't matter. Oh well, this too shall pass.

Tanner on 10/29/2020 10:21:49 AM
Charles I love you like a brother, but it pains me to hear you say or imply that it doesn't matter who wins the White House. I believe in a two party system but not one that will be corrupt and lead us to socialism or communism. I just don't get it. Not being critical of you I just had to vent.

Robert Clanton

Robert Clanton on 10/29/2020 11:05:33 AM

Charles, I am so grateful that we have you at the helm to keep students like me calm and focused.

Janice J. on 10/29/2020 1:08:49 PM
To all you young people out there: Yes, it does matter which party wins the White House. America is at a "Crossroads" in a battle of Capitalism and Christianity vs Socialism & Communism. How we chose will affect you and your offspring forever.

William Brown on 10/29/2020 2:01:12 PM
I think Charles stated that it didnít matter who won the White House was in regard to the market. Either candidate will bring something positive to Wall Street. But we know in our hearts which candidate is good for business and the integrity of the office. Go Vote!

Debbie Waggener on 10/29/2020 5:44:11 PM
 

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