My first thoughts when our 45th president of the United States was diagnosed with the Covid-19 virus and admitted to Walter Reed Hospital a week or so ago was that the stock market was in big trouble. I literally considered selling all of my positions and waiting until after the November 3rd election to get back into the market. Another red flag was raised on October 6th, last Tuesday, when the president tweeted that he would halt negotiations on a stimulus package until after he won the election! I could only shake my head and literally laugh out loud at such a horrible decision, the S&P 500 responded quickly by tumbling 1.4%
late in the session.
Looking back on that day, however, hindsight is truly 20/20; the market had started to price in another stimulus and was rising higher prior to the president's tweet. Largely in part because all signs prior to that day pointed to a stimulus deal getting done soon. Speaker of the House Nancy Pelosi and Secretary of the Treasury Steven Mnuchin were in deep talks while the president was sick at Walter Reed. Fed Chairman Jerome Powell chimed in earlier that week asking Congress to act on a second round of stimulus. The president himself even tweeted sometime previously urging both parties to get a deal done.
For some reason, however, his tone changed after he was released from Walter Reed Hospital. He said Pelosi wasn't "acting in good faith" with her negotiations. But, if there's one thing we can rely on with this president besides his unpredictability, it's his insistence upon not being the blame for America failing or a stock market that doesn't yield returns. In true Trump fashion, he backtracked on his October 6th tweet; likely after seeing the stock market's negative reaction. He immediately pivoted and shifted the blame towards Pelosi and the Democrats; remaining on the aggressive side by suggesting that Congress at least approve another $1,200 stimulus check to Americans in the meantime, squarely placing the ball in Pelosi's court.
Of course, as we all know, a second stimulus deal has still yet to be done. But, that's neither here nor there; because what the market does know with relative certainty is that, no matter who wins the election, a second stimulus deal will get done, at some point. And, for the moment, that seems to be what's driving the market towards a more bullish scenario through the end of the year in my opinion. The only difference is that Democrats will push for a higher stimulus package than the Republicans. Furthermore, after the president's Covid-19 scare, we also know that there will be a vaccine at some point. Another factor that is driving the markets higher is that, in spite of the pandemic, the American economy is slowly recovering. And many companies are beating earnings estimates and showing improvement.
Now, as I've said before, I'm no financial advisor; but if I were, I'd suggest to not take this article as a green light to go out and start buying heavily into the stock market. As Warren Buffet once said, be "fearful when others are greedy and greedy when others are fearful". I would suggest that if you're contemplating entering the market at the moment, proceed with extreme caution. There are many companies that will still be overvalued. What you want to do is look for deals, diamonds in the rough; not over-priced stocks. Personally, I'm looking for companies that have not fully recovered from the pandemic, but will in the future. That's where I think the greatest opportunities will be for higher profits going forward.
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