Surprise, surprise....the NY Times came out with a story about President Trump’s tax returns 36 hours before the first Presidential debate. Who would have thunk??? Don’t get us wrong, Fox News and the GOP is chomping a the bit to come out with their own scathing stories about VP Biden (think Hunter Biden)...so we don’t want to sound like we’re saying the NY Times is the only entity who is sitting on stories until they think they’ll have the maximum impact. (Heck, book publishers have biographies on older Hollywood icons that they sit-on for years...just waiting for them to die...because that’s when those books sell the best......It’s true! How do you think so many biographies came public within days of Marlin Brando’s death???)
It’s funny, it’s always easy to find questionable tactics/actions by both campaigns...and the outside entities who support each campaign...every four years. However this time around, it’s like shooting fish in a barrel. One thing is for sure...this move by the NY Times shows that the ugliness of this campaign...which is already very strong...is only getting started. The Democrats learned four years ago is that the only candidate that is willing to play as “hard” as the Clintons was Donald Trump. To combat this, they’re going to go back to the Clinton playbook and fight-back just as hard.......The next five weeks are going to take the term “ugly” to a whole new level.
One last comment about the campaign. President Trump is winning the “expectations” game in terms of the first debate. The Sunday morning talks shows were filled with comments about how Mr. Trump has not spent much time at all preparing for the debate. They also spent a lot of time how a sitting President usually does a very poor job in the first debate when he/she is running for re-election (especially George W. and Obama). So it is actually the President who has been successful in lower the expectations going into the first debate........The “expectations” game going into the debates should have been a layup for Biden. It should have been easy for them to lower the general expectations...and leave everybody expecting him to get clobbered. This is not the case from what we can see...so this is another reason to think that this election easily go either way.
The futures are trading a lot higher this morning...as we move into the end of the quarter (which comes on Wednesday). It’s interesting to note that the direction of the market at the end of the quarter has been quite mixed in recent quarters...with both rallies and declines taking place. (In other words, the argument that says the action at the end of a quarter tends to be impact by adjustments for the 60/40 allocation semes to have several holes in it.) Therefore, we think that moves we’ll see over the next few days will depend on other issues.
In this case, the comments from Speaker Pelosi that we could get a fiscal package agreement before the election is playing a key role in this morning’s advance. However, we also believe that there is a second development that is helping the market. As we mentioned in our weekend piece, the dollar had become overbought on a very-short-term basis late last week...and it is bouncing in a material way this morning. The dollar has been an important catalyst for the stock market in recent months, so it has become an important indicator to keep an eye on.
Due to the fact that the “positioning” in the dollar that we highlighted over the weekend (with the “specs” net short position being very high), we believe that the dollar will head higher over the intermediate-term. (The fact that it broke above the “neck-line” of an “inverse head & shoulders” pattern leaves us bullish on the greenback as well...over the intermediate-term.) However, a pull-back over the next few days...to work-off that very-short-term overbought condition...is not out of the questions (as we are seeing this morning).
In other words, these two developments could cause the stock market to rally quite nicely into the end of the quarter. The question will be whether it will be another head fake...or something that signals that the worst is behind us in this bull-back/correction in the stock market. We still believe that the overbought and overvalued levels that were reached in the broad stock market (and especially in the mega-cap tech stocks) at the beginning of September were SO extreme that it will take a larger decline than we’ve seen thus far to work-off those extremes. Therefore, we believe that any near-term bounce...even if it’s a strong one...should be faded.
Going back to the political arena, whether we’re right or wrong about the intermediate-term potential for the stock market should be important for the outcome of the election. History tells us that the action in the stock market over the three months leading up to Election Day is vitally important for who wins the election when an incumbent is running.........If we’re correct...and the market falls further after a short-term bounce, it will be positive for VP Biden. If we’re wrong...and the market rallies throughout October...it should benefit President Trump in a compelling manner.
Matthew J. Maley
Chief Market Strategist
Miller Tabak + Co., LLC
Founder, The Maley Report
275 Grove St. Suite 2-400
Newton, MA 02466
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