The Stock Market Needs a Stimulus Bill

We are going to get another stimulus bill. We think Trump needs it more than Dems to keep the stock market supported on Nov 3rd. History suggests the markets do not like the potential for the incumbent to lose the elections and the uncertainty of changed policies. In this case, very different policies between Trump and Biden. Since 1900, an incumbent Republican loss suggests about a 10% market risk heading into the election as measured by the Dow Jones Industrial Average. In general, the market tens to exhibit a post election rally. But this is no normal election.

It’s clear by market behaviour and response to “stimulus” based headlines there is great expectation of a stimulus Bill. This is a huge political potato and an election negotiating tactic. Congress passed a $2.2 trillion Bill Friday and President Trump wants a bill to get done. Pelosi said Friday that they are still fundamentally far apart. Mnuchin’s offer was $1.6T.

In theory, a Bill should get passed, but if you are Pelosi you play hardball knowing McConnell is hard pressed to get it passed given the fiscal conservatives in the Senate. As it looks today, the Democratic sweep potential is high and Dems could get their more widespread $3T Bill done.

If no Bill gets done this week, I expect the markets to begin this weakening trend. The 200-day average for the S&P 500 is as around 3112 (-7.6%) and at 9654 (-16.6%) for the NASDAQ 100. As we approach the October options expiry Oct 16, the 3200 and the 3400 areas for the S&P 500 offer up key areas of potential hedge buying (3400) and hedge selling (3200).

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