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Market Strategy 10/19/2020

  • John Stoltzfus
  • October 19, 2020

We Gotta Live Together (Somehow)

Those who remember who Tip O’Neill and Dan Rostenkowski were can’t help but think “where are they now when we need them?”
Key Takeaways
  • We consider the equity market’s recent performance against the background of the high stakes political election in the US.
  • The stalemate in Washington continues to hinder the much-needed next tranche of fiscal aid and rescue packages.
  • The equity markets’ behavior and resilience suggest a recognition that the market is made up of a multiplicity of factions that point to opportunity outweighing risk without regard to the outcome of the election.
  • Economic data and early progress in Q3 earnings season point to resilience in the US economy notwithstanding dysfunction on Capitol Hill. 
voting pin

Election year stress is certainly not limited to politicians this year as friends and even family members find themselves at loggerheads in day to day arguments over projected potential outcomes that political pundits, bloggers and players digitally launch often unvetted day-to-day, hour-tohour and minute-by-minute.

However, as Election Day 2020 heads toward the final stretch the markets appear to be signaling that no matter how loud the rhetoric gets from either side and no matter which side wins, investment opportunity in some form is likely to prevail over risk beyond inauguration day in January 2021.

In its simplest forms the “everything is gonna be alright” message projects that if the President is re-elected and the country gets “post-Covid” with vaccines of efficacy—in a reasonable period of time we’ll find ourselves “back to the future” (or somewhere around where we were pre-Covid)— with a pick-up in economic growth, a return to record employment, and with the US back on track for sustainable growth leading an economic recovery across the globe as American’s appetite for imported goods pushes the needle for foreign economic growth.

Quotation from Aenean Pretium

In our experience opportunity often arises from uncertainty while a perception of “certainty” often breeds complacency.

If the former Vice-President wins the election the message is that taxes for corporations and tax-paying individuals will rise driven by a surge in government spending including a number of new social programs that in their breadth and scope will boost economic growth and offset the higher costs of taxes, increased regulation and a move toward a greater presence of the government on the economic landscape. Both sides and their constituencies are adamant about having the key to the proverbial highway of prosperity and fairness for all while certain that “the other side” of the political aisle’s methodology will deliver ruinous results.

As market strategists we strive to keep “agnostic” when discussing such political situations from our perch on the Market Radar Screen—and in the course of doing so we inevitably ruffle feathers on both sides of the political aisle.

Suffice it to say that in our opinion money belongs to a diverse group of individuals, societal groups, institutions and myriad entities. It’s no secret that investments are made not just by conservatives and liberals, Democrats or Republicans, but by individuals and institutions that lie across the spectrum of left to right to center and all points east, west, north and south. It is such a diversity of interests that leads us to believe along with historic precedence that the markets are not likely wrong in their seemingly sanguine approach toward the yet unknown outcome of the election.

It is often said that “the market doesn’t like uncertainty.” Often when we hear that we think to ourselves: “Really?” In our experience opportunity often arises from uncertainty while a perception of “certainty” often breeds complacency.

The equity market’s behavior and resilience particularly of late suggests in our view a recognition that the multiplicity of factions that participate in the market on a day to day basis have begun to recognize that while “history may not repeat itself, it often rhymes” (a quote attributed to the great American author Mark Twain).

For our purposes of strategic rumination in this week’s piece the thought behind Mark Twain’s often quoted phrase serves to mean “somehow we’ll muddle through it”… or perhaps we’ll arrive at a better place than either side of the political aisle expects.

Currently politicians in Washington remain mired in a stalemate as one side insists on “all or nothing at all” apparently willing to hurt the people that the economy serves while the other side appears to be saying “let’s make a deal”—even as it is hindered by a faction from within its own party that mirrors “all or nothing at all”. As observers we can only hope that cooler heads will somehow prevail and that a deal to launch what possibly could be the last of costly but very much needed rescue programs will become a reality.

So far the economy has shown marked resilience on a number of levels throughout the delay in reaching an agreement in Washington. Retail sales, home sales, employment and key gauges of consumer sentiment  as well as other recent data points are showing relative strength and a resilience evidenced in the US economy that would be a shame to lose for both Main Street and Wall Street—and for the American people.

On the earnings front the S&P 500 earnings season now underway is surprising to the upside. It’s still much too early to tell how the earnings season will play out but so far so good with news crossing the tape over the weekend showing 84% of companies thus far reported have beat earnings expectations and 82% have beat revenue expectations for the quarter. Suggesting things are improving notwithstanding the ongoing election year and political wrangling.

“Give peace a chance” and don’t forget to vote this election.

John Stoltzfus of Oppenheimer Asset Managment Inc.

John Stoltzfus


Chief Investment Strategist, Oppenheimer Asset Management Inc.

John is one of the most popular faces around Oppenheimer: our clients have come to rely on his market recaps for timely analysis and a confident viewpoint on the road forward. He frequently lends his expertise to CNBC, Bloomberg, Fox Business, and other notable networks.

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