MARKETS: ANTICIPATING A BIG MOVE

I am writing this article today on Halloween, 10/31/20, which, ironically, may be just fitting looking ahead into next week.
I believe the week beginning this Monday, 2 November, is going to be quite scary for the equity market!
This coming Tuesday is the MUCH-anticipated Presidential election. Depending on how that plays out, the stock market is going to move in a big way. The real question is, Will this market make a big move higher or a big move lower?
Over the last two weeks, volatility in the stock market has been exceedingly high, with wild gyrations and stocks falling under pressure. Underlying these wild swings, we have seen the U.S. dollar gain strength, which is a sign of FEAR in the market, and, more importantly, we have seen a large amount of capital exit the debt market causing a spike in the 10-year yield.
The spike in the 10-year yield is an indication cash is leaving the debt market and, as such, in a falling stock market environment, is seeking “safety” in cash. Henceforth, why we have seen the recent dollar strength.
The downward pressure on the market is in large part a reflection of the new economic restrictions and shutdowns occurring in Europe. The U.S. market is fearful the shutdowns in Europe may bleed off to United States.
The arch-enemy of the stock market is uncertainty, and the current environment undoubtedly has no shortage of that. When the market becomes “uncertain,” you will witness the kind of volatility the market has experienced in the last two weeks… especially in the last week.
The Election
The market wants to know who the next President will be, and, to a large extent, the market doesn’t care who wins – it is just seeking that elusive “certainty.” Once the market knows for certain who the next president will be, I expect to see a relief rally in the stock market to occur, meaning stocks will go higher.
If we end up with delays, and perhaps even a contested election, the stock market will react in an EXTREMELY negative way.
Scenario #1: It is a clean election with no delays and a clear winner. Stocks will make a big move higher.
Scenario #2: On Election Day, there is no clear winner. Stocks will react to that “uncertainty.”
Scenario #3: The election is contested. Stocks will nosedive.
As I covered earlier, uncertainty and FEAR in the market has caused the usual “knee jerk” reaction into the perceived safety of cash, and the U.S. dollar has seen significant strength as of late.
We have also seen cash exit the debt market, which is simply looking for a place to go. If we have a clean election, it is my firm belief we will see the cash that has exited the debt market make its way into the stock market and, subsequently, equities will rally.
If we end up in any other situation, the worst of which would be a contested election, the stock market will take a hit and it could be substantial.
We will just have to wait and see.
by Gregory Mannarino, TradersChoice.net