This article will analyse some of the key news stories from the last few days.
It will look at some of the major stories, including some misleading ones!
One of the most interesting stories I heard recently was from Forbes, titled Fasten Your Seat Belts: Markets Could Have A Bumpy Election Season.
With the Democratic and Republican political conventions behind us, election season is in full swing. This month seems like a good time to review the historical patterns of previous presidential elections and how investors can use that knowledge to guide them during the current season.
The U.S. stock market hates uncertainty. That’s why, as we can see in the graph below, the market has tended to sell off somewhat in September and October going into a presidential election. Once the outcome of the election is known, regardless of the winning party, the market ends the year on a high note, rallying in November and December.
Regardless of the current polls, I expect it will be a close election in November. And given the likely large number of mail-in ballots, it’s very possible that we will still not know the winner of the presidency the morning after Election Day. This uncertainty poses a risk for the stock market, and I think there is a high probability that this year will follow precedent with another weak September and October.
Market Performance in Election Season
The charts below show, by month, average market and sector performance for all years, 1970 to present, as well as the fourth year of the presidential cycle, the election year. Historically, the DJIA and NASDAQ experience losses in September and the S&P 500 has a slight gain. In October, all three indices normally have losses. After the election in November, the S&P 500 and DJIA begin to rise as the uncertainty fades, but the Nasdaq has another month of losses before turning positive in December.
Only two sectors have positive returns on average in October of an election year: Retail and Technology. Given the extreme outperformance of both sectors this year, it will be interesting to see if this pattern holds. Coming out of the election, Health Care tends to perform strongly. In November and December, the Cyclical and Commodity sectors perk up as they look ahead to the new year with optimism, while Retail and Technology lag.
When an incumbent wins a second term, regardless of party, the market usually performs better in the first year of the second term than it does in the first year of a new president, as the chart below shows. This may be because, when the incumbent wins, it’s often because the U.S. economy is strong. Given the current economic weakness in the wake of the COVID-19 pandemic, I’m not sure if we can expect this to hold true if President Trump is re-elected.
The market also prefers a system of checks and balances, where one party occupies the executive branch and the other party controls at least one house of Congress. When the U.S. government is dominated by one party, one-month and three-month returns have generally been negative, regardless of whether the Republicans or Democrats are in charge. Over six months, market performance is flat under Democratic control and sharply negative under Republican. However, one year out from the ruling party’s election, returns are positive under both parties.
Light at the End of the Tunnel
History tells us that investors should exercise some caution in the waning days of summer and through September and October. After the election, the U.S. market has performed well on average, regardless of which party wins, though incumbents have better returns in their first year than new presidents. But given that markets have thrown off all semblance of normal seasonal patterns this year due to the extraordinary circumstances of the pandemic, 2021 could surprise us. Either way, I encourage investors to fasten their seat belts and reduce some of their risk as we enter what is likely to be a bumpy election season.
Analysis of article
The problem with articles like this is they encourage people to try to time the best times to enter the market, which is almost impossible.
They also forget the elephant in the room. In 2016, countless people didn’t enter the market in case Trump got elected.
Most people, even many of his supporters, thought markets would at least dip for 1-2 months.
They didn’t and many people suffered, including a person that interviewed me last week!
Let us not forget either that many of these publications were predicting that stock markets would dive again in March, April and May.
Instead, stock markets have continued to soar, despite the recent pullback in the last few days.
The point is, nobody knows for sure how markets will react to the election.
Gold prices settle at 1-week low as U.S. stock market tumbles
This article came courtesy of Marketwatcher.
“Gold futures fell Thursday to settle at their lowest level in a week, as some traders look to the precious metal to cover losses in other assets on the heels of a drop in U.S. benchmark stock indexes.
U.S. stock indexes traded sharply lower, poised to erase their gains for the week. Sharp losses in the stock market can send traders scrambling to cover losses by selling other assets, such as gold.
This “jumpy” gold price and market is “going to grind the emotion of traders, on both sides of the market in the coming weeks,” said Peter Spina, who is president of GoldSeek.com and SilverSeek.com, providers of news and analysis for the precious metals.
He told MarketWatch that he sees strong support in the $1,900 area for gold prices, and believes the metal will “soon again try to push back up” towards $2,000.
For now, December gold GCZ20, -0.61% GC00, -0.60% fell $6.90, or nearly 0.4%, to settle at $1,937.80 an ounce. That was the lowest finish for a most-active contract since Aug. 27, according to FactSet data. Prices declined by 1.7% on Wednesday.
December silver SIZ20, -0.91% SI00, -0.91%, meanwhile, dropped 52 cents, or 1.9%, at $26.875, following its 4.4% skid in the previous session.
Gold had struggled for direction early Thursday, pressured by a fall in weekly U.S. jobless claims, but had also found some support from data showing a monthly jump in the U.S. trade deficit.
“The U.S. jobless claims number was “better but the trade balance data was really awful,” said Naeem Aslam, chief market analyst at AvaTrade.
Initial jobless claims fell by 130,000 to a seasonally adjusted 881,000 in the last week of August, the Labor Department said Thursday. Government data, however, revealed that the trade deficit jumped 18.9% in July owing to a big snapback in imports.
Gold is still trading above $1,900 and “this is keeping the hope alive for the price to target the $2,000 mark,” Aslam told MarketWatch. The “biggest risk event for the gold rally” is Friday’s U.S nonfarm payrolls data and “only a strong reading can break the back” of a gold rally.
Meanwhile, “the U.S. dollar index has fallen significantly over the last five months,” said Spina. “Should there be stronger economic data as we move into the Fall, then this will help spur a rally in the U.S. dollar from these oversold conditions.”
A strong dollar “could put a bit of pressure on the gold price and keep it in a sideways market near $2,000,” he said. “But that is just short-term noise. The bigger picture is what is important and those fundamental drivers are significantly in gold’s favor.”
In Thursday dealings, the U.S. dollar traded little changed, as gauged by the ICE U.S. dollar index DXY, 0.10%, a measure of the buck’s strength against a half-dozen currencies. After touching a two-year low, the index has gained 0.5% so far this week.
Gold, which is priced in dollars, often trades inversely with the dollar, as moves in the U.S. unit can influence the attractiveness of the metal to holders of other currencies.
For now, gold is in a “healthy consolidation phase after a quick price run-up,” Spina said. “Gold is priming for its next move above $2,000 to fresh record highs.”
Given all that, Spina believes “this is an excellent time to be accumulating, specifically the miners,” pointing out that they are “trading very cheaply compared to historic ratios, they have yet to catch up to even these new higher prices.”
However, growing expectations for a vaccine or effective remedies against the COVID-19 pandemic, also have weighed on precious metals’ pricing lately, experts say.
Bullion has been boosted by economic uncertainty stoked by the pandemic and by the outsize monetary efforts implemented by central bank’s to stem the harm to business activity across the world, but a cure or treatment for the deadly disease could dislodge gold from its bullish perch.
“If a vaccine is imminent, it is safe to assume that central bankers will take their foot off the policy accelerator,” wrote Stephen Innes, chief global markets strategist at AxiCorp, in a daily note.
Among other metals traded on Comex, December copper HGZ20, -0.43% fell 1.5% to $2.975 a pound. October platinum PLV20, -1.04% fell 1.6% to $889.60 an ounce, but December palladium PAZ20, -0.44% added 2.4% to $2,321.60 an ounce.
Analysis of article
I have made two points on countless occasions about gold. Firstly, long-term it is a terrible investment.
Sure, it has its good periods, but nobody can foresee those excellent periods.
Second, it isn’t a safe heaven. It went down during 2008-2009, despite being on a long bull run, and fell during March as well.
Gold has actually performed better during times of slightly heightened risk, rather than very high risk, when people tend to go towards government bonds, and even periods of low risk.
The price of gold has barely moved during QE. In fact, it went down during 2011-2017, despite more and more QE, and its’ real terms price is still below 2011 levels.
Tech stocks plunge, sending Nasdaq into correction territory
This article came courtesy of the Financial Times.
“US technology stocks suffered their worst sell-off since the depths of the market turmoil in March, with the Nasdaq Composite diving into correction territory and Tesla losing more than a fifth of its value in a single day.
The technology-laden index fell for a third straight session, declining 4.1 per cent in a rout that gathered momentum in the hour before Tuesday’s closing bell. That brought its losses to more than 10 per cent since last week’s record high, marking its worst stretch in almost a half year.
Two-thirds of the stocks in the Nasdaq Composite lost ground as investors raised concerns about the valuations of technology companies, which had soared despite the economic fallout from the coronavirus pandemic.
Shares in Tesla fell 21 per cent, its worst trading day ever, with more than $82bn wiped from the electric carmaker’s market valuation, roughly the value of Morgan Stanley or Caterpillar. Other high-flying tech stocks were also knocked, with Apple falling 6.7 per cent and Microsoft down 5.4 per cent.
Shares in SoftBank plunged almost 5 per cent in early trading on Wednesday, as Tokyo dealing rooms absorbed the overnight sell-off, bringing the Japanese tech company’s total decline this week to 12 per cent.
The broader S&P 500 slipped 2.8 per cent, led by declines in tech shares. The slide pushed the benchmark US equity index to its biggest three-day decline since June, when a surge of coronavirus cases in the US rattled financial markets.
“Equities were priced to perfection,” said Alexis Gray, investment strategist at Vanguard. “That was always going to be difficult to sustain when you have a disconnect between how markets are performing and what global economies are doing.”
Daniel Grosvenor, director of equity strategy at Oxford Economics, said the rally in the big tech groups also “has been out of sync with their contribution to index earnings”. He added: “The gap between their market-cap weight and earnings weight is now similar to that of the top five at the height of the tech bubble.”
Analysis of the article
Some of the big tech moves that moved the most, for example Tesla, were definitely primed for a fall.
Tesla has only became profitable in the last two quarters! Let’s keep these falls in perspective though.
The Nasdaq and S&P500 are back to where they were on August 11, less than a month ago!
The article does make some misleading claims though. As I have said on countless occasions before, there is little or no correlation between stock markets and GDP growth.
Indeed research from Vanguard itself has shown that, and yet somebody working for the company mentioned, or implied, that there is a connection between the two things.
In any case, every small (or large) fall in markets is a great opportunity for the long-term investor.
Since the 1990s, the Nasdaq has been the best performing major index, giving investors an average of 11%-12% per year.
Yet it was stagnant for about 10-13 years after the 1999-2000 crash.
The point being, people shouldn’t care about short-term price action.
