Market confused as macro trade keeps pushing it higher in election uncertainty!
Local market had a strong positive day as global asset allocation trade delivered three consecutive positive moves in the US market to start the new election month. Global passive funds reduced exposure to all liquid asset classes ahead of election risk and started to enter back from the start of the month. The election result is irrelevant as any result means some clarity for the next few years compared to the mess beforehand. The investment jammed up equities and bonds alike. Usually this macro trade takes a few days and we may be coming to the back end of that as US market peaked up 700-800 mid-day overnight but closed up 370 after giving up more than 50% of the days gains. Simply put DOW has run 1350 points in 3 days while bonds ripped higher and drove US 10 year bond yields to fall by 16% in the same period. We went from blue wave (i.e. was not supported by detailed poll data) to status quo to flipping White House (i.e. most likely outcome). Now this may change with votes yet to be counted but the trend suggests Presidential change is the only layer of government that is going to move in this election cycle. As expected, the incumbent is going to challenge in the courts and drag it out while social unrest risk remains elevated in a polarized country. US Fed meeting update should get a lot of supportive optimistic bingo words as they have no choice but keep printing and hope it gets better. Hope is the only strategy left when economic growth is fading in a pandemic that is running wild. Once the dust settles on the election, we may get some science lead leadership to curb the Covid 19 spread in the US like what they are doing in Europe. The delay in responding to the pandemic means the solution will be more dramatic!!!
The latest election update shows that Democrats are one state win away from locking in the White House flip while Senate and Congress leaderships are not expected to change. Expect more market and social volatility as self-interest takes over national-interest!!!
Overnight the US market had another solid positive day on the back of passive money that left ahead of election risk coming back. Bonds are ripping in recent days while equities are jumping. These big moves are macro moves at scale doing asset allocation and not fund managers picking stocks. Expect this macro trade to run out in the next day or two and then fundamental will get priced. We are currently looking at a presidential change by a nose with no change in control for senate or congress. Stimulus bet is waning and pandemic numbers are shooting higher. We have already had the fake win claim and the fraud claim and the legal threat. There will be clear winner in the next few days but legally that may take some time. Falling yields on economic worries has Russell in flat territory while NASDAQ was the best performer of the day with tech and health care as leading sectors. USD ticked lower and commodities a bit higher. Maintain positive view on miners for China growth despite geopolitical risks.
Remain nimble, contrarian and cautiously pragmatic with elevated global macro risks!!! Buckle up...it’s going to get bumpy!!!
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Over 25 years’ experience in the finance/tech industry. Mathan has worked extensively in all parts of the finance sector (i.e. County NatWest, Citi, LIM, Southern Cross, Bell Potter, Baillieu Holst and Blue Ocean Equities). Currently Founder and...