With election eve upon us, we thought it would be helpful to share market based presidential election polls along with Greg Valliere’s final thoughts.The graph on the top left shows the price of Trump Media & Technology Group (DJT), which runs Truth Social Media. Truth will be a clear beneficiary if Trump wins and will likely struggle if he loses. The graph shows that the stock was relatively dull until earlier this year when it started to price in the benefits of a potential Trump victory.Below the DJT graph is the Goldman Sachs basket of stocks likely to benefit from who wins the election. This market poll currently has a clear bet on a Trump victory and a Republican sweep of Congress.Lastly, on the right are the Polymarket betting odds. As shown, Trump has 62.9% odds of winning, having gained some ground over the last month.While the market polls seem to have Trump as the winner, Greg Valliere thinks Kamala Harris “will win the presidency by a fraction.” We have been sharing a few of this long-time Washington insider’s views over the last few months. Accordingly, here are his final election thoughts.
THIS ELECTION IS SO CLOSE that it could be Christmas before there’s a final result. It’s virtually certain that we won’t know the winner on the morning of Nov. 6, the day after the election. A winner has to be declared by noon on Jan. 20.
IT’S POSSIBLE THAT HARRIS WINS COMFORTABLY — she even may make a last-minute push in Florida — and it’s possible that Trump may win Pennsylvania, and thus the election.
BUT THE MOST LIKELY OUTCOME IS A PHOTO FINISH — Harris by a fraction in a race that may not be settled until there’s a resolution of at least 8 or 9 recounts. The big winners will be the lawyers.
(Click on image to enlarge)What To Watch TodayEarnings(Click on image to enlarge)Economy(Click on image to enlarge)Market Trading Update we discussed the break of the rising wedge pattern.
“Unsurprisingly, the market stumbled a bit this past week, breaking the “rising wedge” pattern to the downside. However, the market continues to find buyers at the 20-DMA as portfolio managers are unwilling to be “out of the market” currently.”
Such remained the case this week until it didn’t. On Thursday, the market cracked the 20-DMA and swiftly fell to retest the 50-DMA. There is an important lesson in this week’s action. Over the last several weeks, we have warned about the weakening of momentum and relative strength and the triggering of the MACD “sell signal.” However, many followers commented that the market kept rising despite my warnings and “this time was different.” The lesson is that while technical analysis is NOT perfect, the signals derived from the analysis are often a good process to follow. As always, “timing” is the most difficult challenge. The indicators told us that the market would likely “derisk” before the election, which is now evident.(Click on image to enlarge)As we have repeated, while the market was set up for a short-term correction, the backdrop remains bullish. Thus, we expect momentum to carry into year-end. However, here is an interesting data point from Goldman Sachs trader Brian Garrett, which was pointed out this past week.
“Between the lows of October 2023 and the highs of October 2024, the SPX rallied over 40%.What is almost unprecedented about this rally is that it was achieved on a realized volatility of ~12, yielding a “Dirty Sharpe” ratio above 3. Such has only happened previously in ’95, ’97, and pre “vol-mageddon” in 2018.“
To put that into layman’s terms, the last 12 months have been one of the greatest risk-adjusted yearly returns in market history.What should be noted is that such low-volatility, exuberance-driven rallies eventually end. They lack the appropriate catalyst. As we concluded last week:
“There is currently little risk of a bigger near-term correction. However, some things could cause one, like a highly contested presidential election. In the current political environment, such is not a low-probability event. As such, while we remain allocated to the markets, we are closely monitoring the amount of risk we take.”
In other words, don’t forget to manage risk.
The Week Ahead & The BLS Employment ReportThe closely followed BLS employment report was well below economists’ expectations, but the market reaction was remarkably muted. The twin hurricanes likely played a significant role in the shortfall of new jobs. The graphic below shares the disclaimer issued by the BLS. The BLS reported that the economy added 12k jobs versus expectations of 115k and last month’s revised 223k. Moreover, August’s gain of 159k was revised lower to 78k. The unemployment rate was flat at 4.1%.The election will be the most critical market driver of the week. However, if it is contested and a winner isn’t declared immediately, it could have a lasting impact for weeks. If Trump wins, as the market polls believe, we will likely see some of the Trump beneficiaries continue to do well. However, a Trump trade reversal could occur if Harris wins, as Greg thinks is possible. As we said a few days ago, buckle up!As if the election weren’t enough news to digest, the Fed will meet on Wednesday and likely reduce rates by 25bps. They will also signal whether another 25bps in December is possible. The bond market will have to absorb a 10-year auction on Tuesday before the election and the Fed, followed by a 30-year auction on Wednesday. Both auctions will likely create some bond market unease as Wall Street will be asked to buy bonds with the Fed and election results unknown.
Corporate Buybacks: A Wolf In Sheep’s Clothing
Corporate buybacks have become a hot topic, drawing criticism from regulators and policymakers. In recent years, Washington, D.C., has considered proposals to tax or limit them. Historically, buybacks were banned as a form of market manipulation, but in 1982, the SEC legalized open-market repurchases through Rule 10b-18. Although intended to offer companies flexibility in managing capital, buybacks have evolved into tools often serving executive interests over broader shareholder value.This article explores the mechanics of buybacks, how they impact markets, and whether they truly return capital to shareholders—or merely enrich insiders.
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