Election Fears

They tried to hold 2120 and when it broke, we got a little panic yesterday.  You can play the percentages, and have the odds in your favor, and still lose.  I dipped a toe on the long side around 2120 and took some heat.  But the statistics are favorable after yesterday's trade.  We finally got some fear into this market, with the uncertainty over the election finally coming to a boil.

There are going to be less willing buyers ahead of the election, so the only way to get them enticed is to lower the prices.  And that's what happened.  We finally got some higher volume and got rid of a lot of complacency in a hurry.  There is a tendency to dip a week or two ahead of these big events like Brexit and the US election but then rally only a few days ahead of it.  It is as if the market trades on what will happen a week later, not a day later.  So we are getting rid of the nervous short term buyers afraid of a possible Trump presidency, however small the odds are.  They don't want to risk jumping in ahead of a possible plunge.  There is opportunity when others have irrational fears.

I actually think Trump is equity positive and bond negative, while Clinton is more equity negative, bond positive.  But people are thinking Trump equity negative, bond negative, and Clinton equity positive, bond positive.   So you are not seeing much of a bid in bonds despite the S&P weakness.  Trump's economic policy will be to lower taxes and spend more, similar to Reagan.  All else being equal, that is equity positive.  His trade policies scare some people, but it will be impossible to push through any kind of big trade barriers with the Congress bought and paid for by the multinationals.

Thinking an intermediate term S&P bounce from here to the end of next week towards 2160 after the uncertainty of the US election dissipates.