Markets are priced for most of the upside

Local market fell for the first half of the day and mainly stayed down for a solid negative day despite currency bounce. In the recent times micro caps outperform large caps and currency bounce gets global fundies buying into our market. The last few days that seems to have changed as sentiment turns negative. Micro caps are underperforming and Global fundies are not buying the currency bounce. Covid 19 pandemic is rampant through Europe and US. Europe is taking steps to curb it while US is ignoring it for political reasons. The US stimulus package seems to be off the table pre-election while post-election structure of government in the US could be just about anything. Election in just over a week but result could be 2 to 3 weeks away. Republicans will be ahead on walk in voting and then lead will shrink as mail in votes come through. It is mainly about the 5-6 swing states and senate seats. Will one side get all three layers of government? Will the president have two houses ruled by the other side? Will nothing change? Will it all change? Markets are priced for most of the upside while ignoring most of the downside. Irrespective of the election result, there will be winners and losers but they are not the same. Stimulus will be different, taxes will be different and multiples will be different. Everyone is long vaccine trade but what happens if there isn’t one? Given that the odds of both are similar while some therapeutics mix to curb the effects are the most likely risk weighted outcome. We got the returns over the last seven months and now the risk is playing catch up!!!

The Covid 19 pandemic is rampant through US as daily cases hit new highs. Inevitably the hospitalization will follow and that will drag deaths higher. Given the political polarization has made the basic steps to reduce the spread as an ideological argument, US is highly likely to have the spread go wild over the next month while the prolonged election process is finalized. Irrespective of the winner, the country will face economic and pandemic problems well after the election cycle!!!

Overnight the US market fell hard from the start to be down over 900 before recovering to close 650 down. Stimulus talk is just more talk and no action. Economy is fading while Covid cases are hitting new highs as Whitehouse said they have no plans to control it. Trump has claimed the Covid numbers are fake news media conspiracy overnight. You can’t make this stuff up!!! It is actually scary that we could be seeing over 100k cases per day after the election in a few weeks. Europe is another global recovery region already going in early steps of lockdown restrictions. Russell and DOW were the hardest hit with NASDAQ falling less. Bonds and US$ higher while commodities lower. European markets were down near 2% while DAX down nearly 4%. Gold was mainly flat. All sectors were hit in the US with Energy and Financials the worst.

Remain nimble, contrarian and cautiously pragmatic with elevated global macro risks!!! Buckle up...it’s going to get bumpy!!!

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