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Morning Commentary

FORGET THE PRESIDENT TODAY, IT’S THE KING   

By Charles Payne, CEO & Principal Analyst
11/5/2020 9:12 AM

We really can’t call it ‘the day after the Presidential election.’ Counts continue, and the lawsuits are just warming up. But a big concern of Wall Street was answered, and that’s why the stock market enjoyed a strong session.

Yesterday, the stock market made a big move because the Republicans held onto control of the Senate and even gained seats in the House. Even as the White House prepares to contest parts of the process, President Trump performed so much better than expected, denying Joe Biden the opportunity to claim mandates for the more economically dangerous components of his agenda.

I’m referring, of course, to the most draconian and socialist tendencies of Biden & Co and the pressure he would have received from the far left. By the way, just because Joe Biden is not as radical as Representative Ocasio-Cortez, his campaign rhetoric is a multi-trillion pipe dream to build a utopia powered by solar and wind energy. 

Other than that, his promises are vague on specifics but involve taking giant gobs of money from rich people (anyone earning more than $400,000 a year, including small businesses). He’s grinding it through the government machine, as the crumbs and pixie dust that comes out the other end will be distributed to folks left behind based on his tax plans. 

I have no idea how much it all costs, but the Urban Brookings Institute modeled his proposed tax plan to raise it by only $2.4 trillion when he clearly stated he needs at least $4 trillion. That means higher business taxes, and that means fewer jobs and less investment. The GOP Senate will build a moat around the grandiose schemes, and this is why investors should remain invested in the stock market.

If we end up with President Biden, he will have the power of the pen, which means more executive orders, but things such as higher capital gains tax rates are off the table, hence yesterday’s sigh of a relief rally. 

When I say, “invested in the market,” it doesn’t mean you have to always be 100% vested, and it doesn’t mean you cannot ring up profits and be proactive. But sitting on the sidelines, as the United States inevitably climbs out of its Covid-19 fog, adds more stimulus, and has trillions in dry powder, would be a huge mistake.

2021 could be a huge year for the economy and stock market, but I think it will be a very selective market as well. Yesterday is a perfect example, as there were 268 losers on the S&P 500 and only 236 winners.

Retreat to Winners

It’s rare to see the S&P 500 up more than 2% in a single session and have four sectors that are not only down; but off more than 1% point. 

Many of this week’s winners are companies that posted strong financial results, beating on the top and bottom lines, and most offered guidance above Wall Street’s consensus. But they were slammed in an environment of selling, stoked mostly out of fear of a Democrat ‘Blue Wave’.

I want to look at the sectors that got hit yesterday because some of the selling was overdone. Materials were slammed, as conventional wisdom shifted to the notion a massive infrastructure project would be put off or never come to fruition. I still think Materials are going to fare well with the housing boom and as the manufacturing renaissance reignites. I loved the action in Sherwin-Williams (SHW).

Industrials were lower, but defense contractors rallied, which goes against the idea their budgets would be sacrificed to focus more funding on domestic spending. I think it was also interesting that Utilities was hit when many zeroed in on the sector as a Biden Sector ahead of the election.  

Then there are Financials, dragged lower by regional banks that were looking very attractive.

S&P 500 Index

+2.21%

 

Communication Services XLC

+4.31%

 

Consumer Discretionary XLY

+2.13%

 

Consumer Staples XLP

+0.05%

 

Energy XLE

+0.14%

 

Financials XLF

 

-1.17%

Health Care XLV

+4.44%

 

Industrials XLI

 

-1.03%

Materials XLB

 

-1.70%

Real Estate XLRE

+0.28%

 

Technology XLK

+3.89%

 

Utilities XLU

 

-1.50

The Man Who Would Be King

Why Fed Chairman Jerome Powell is the Winner, No Matter the Election Results

Federal Reserve Chairman Jerome “Jay” Powell graced the cover of Barron’s magazine with the claim that he is the winner, no matter what the election results.

Unlike the President of the United States, Jerome Powell can pull trillions out of thin air without engaging in a tug-of-war with political rivals. There used to be laws of diminishing returns, logic, and the threat of runaway inflation, but not anymore. Make no mistake. The Fed is in an awkward position to find new accommodation tricks.

Two of the last three Federal Open Market Committee (FOMC) meetings saw the market rally until 2:35 p.m. when Powell began his question-and-answer period. It was clear the Feds didn’t have a plan.

Hotline Model Portfolio Approach

We are adding a new position in Industrial’s this morning in the Hotline Model Portfolio. If you are not already a subscriber to our Hotline service, contact your account representative or email Info@wstreet.com to get started today. 

Today’s Session

The manic rally in the market is the exact opposite of the rapid decline in the so-called fear index.  There is no doubt the market is thrilled the GOP will control the Senate, but the slide in the VIX also suggests that despite early pushback, ultimately there will not be a contested election.

 VIX

Powell at the Bat

Of course, the big move in the market and sigh of relief could reverse very quickly if the Federal Reserve does not impress Wall Street today.  Jay Powell must give details on the type and amount of additional accommodation its prepared to immediately implement.

The Fed will be under additional pressure after the ECB added additional stimulus.  That move was taken hand and hand with the UK government extending 80% supplemental wage assistance for furloughed workers.

The Election

Also during the session, there will be updates on the election with an intense focus on Georgia and Arizona. 

Earnings

The focus is back on earnings reports, including those from prior weeks that were lost in the noise of Covid19 headlines and election angst.  There are a ton of major earnings beat this morning.  Check out results for General Motors (GM), which has returned to a role as economic proxy. 

Initial Jobless Claims

Initial claims came in slight less than expected, as it matched the level of last week of 751,000. This is down a lot from where we were, but it is still disheartening.  


Comments
Thank you, Mr. Payne, for your newsletter. May you/we always remain free to speak out.

Judith Caratenuto on 11/5/2020 10:09:58 AM
Wish I could be as confident as you. Very concerned.

Lisa Alba on 11/5/2020 10:23:27 AM
Hello Lisa I am concerned.  In fact so many things concern me it's why I woke up at 3am after hitting sack around 11PM.  But I rely on history and the knowledge in their hearts most Americans want the same thing for their own lives just think there are different ways to reach those goals. The big issue has been foisting opinions and judgement on others that has created this insidious cancel culture. .What saddens me most is there are a pocket of elites that pose as republicans and democrats but do not care about voters in either party.  They make us vote against our own self interest and now they egg on hostilities that are boiling over. Meanwhile, we keep coming up with things that make life easier, deal with health more effectively and when we are smart backdrops that allow more Americans to ride that wave of prosperity.  In the stock market I invest in fundamentals and management and try to take advantage of technicals and behavior trends.  I implore you to be concerned because it means you care. But please do not succumb to these forces.  CP

Charles Payne on 11/5/2020 10:31:00 AM
Unfortunately, Charles, my cynicism overrides your optimism. Stay well.

Allan Fleisher on 11/5/2020 10:54:57 AM
One thing we have to remember is to keep events in perspective. God is the supreme ruler of the universe and is still in command of the overall world. We will survive a presidential change if we have one, and also the Corona Virus Pandemic, as Americans are strong and resilient. Keep up the good work for all of us investors, Charles.

William S. Brown on 11/5/2020 11:54:47 AM
Been a loyal viewer for years, appreciate your (very entertaining) candor and insight (and wardrobe!). Noticed with such emphasis on headline stocks or wildcard recommendations, often the old reliables get overlooked. Election drama aside, reopening will require moving stuff. Lots of it. Boring Norfolk Southern (NSC) has had a neutral or sell rating from almost everyone for a year but has a solid balance sheet, decent yield, and rebounded to trade at an all time high. Dependency on coal traffic may deter some but they'll benefit from any infrastructure deals coming regardless of administration. Some of us squares took advantage of NSC trading in the 120s few months back, now teasing 230 but lacking the sexiness of tech its overlooked. Meanwhile I'm praying for a miracle. Having been on the ground in Kosovo back in the day our President moved me to tears with the Kosovo/Serbia deal as well as the Abraham accords. Hope he has a chance to finish what he started but, as we used to say, "Win the argument, lose the customer." Tone down the personality and he'd have his second term.

Paul Wittrock on 11/5/2020 1:27:01 PM
 

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