Monster Relief Rally

The market hates uncertainty.  Not just the stock market.   Also the bond market.  People hold bonds too, and they also have market risk.  Investors were coming up with all sorts of nonrelevant (in my view) reasons why the market fell so much last week, mainly the Covid 2nd wave and associated lockdowns and the lack of a fiscal stimulus deal.  Well, nothing has changed on those 2 items, yet the market is screaming higher.  I heard very little about the main reason I think markets were weak last week: the election.

The 'Rona is just not a market mover anymore.  It is too much of a well known variable, and most of the assumptions are pessimistic for the short to intermediate term.  We've had lockdowns and the markets went up.  The stock market isn't scared of a partial lockdown.  Closing down bars and restaurants just isn't that big of a deal.  So there is nothing worse to price in for that variable.  Its not really much of a variable anymore.  

To a lesser extent, fiscal stimulus is also becoming a more well known variable.  We will get a fiscal stimulus, its just a matter of size.  And I don't care how much McConnell and his crew talk about too much debt and too much money, this isn't 2010, or 2012.  It's a totally different environment for government spending, and it is embraced by both sides, although Republicans will pretend like they care about the deficit, when they really don't.  And especially because the masses don't care.  

So if those two variables are not really moving the market, then it has to be the most feared event of 2020, and probably the last 4 years.  The 2020 US election.  When you have brokerage firms raising margin requirements to prepare for volatile markets due to that event, and well ahead of time, you now you have a much feared event.  And that event is what has dominated trading flows for the past 3 weeks.  After the event, its a huge sense of relief for the market, and that means higher prices.

And even though we still haven't had an official Presidential winner declared, its looking like Biden with very high probability.  And that certainty is what is feeding the market higher.  Even when you probably had the worse case outcome of a Biden win and a Republican Senate, the market just isn't going to get down to the minutiae at the moment, its just relieved that there isn't a contested election, or mass riots, like some doomsdayers were predicting.  

The fact that we are getting such a huge rally despite there still not being a declared winner for President shows you the underlying buying pressure in this market.  You've got gridlock in Washington which is a huge sigh of relief for bond investors, and bonds are screaming higher along with stocks.  That's about as bullish a scenario as you can get.  Despite what the five minute macro experts tell you on Twitter, stock market rallies last a lot longer when they are accompanied by a strong bond market. 

Lastly, I've seen this sh*t so many times, being the bear that I am, getting my face ripped of on V bounces, over and over, that I finally learned my lesson.  9 times out of 10, the dips will be bought and act as a springboard for big rallies so I'm just playing that game.  Fundamentals will matter in another time.  Not now.  Sometimes its just as simple as buying a decent dip and just hanging on for the ride back up.