Your Portfolio Doesn't Care About Your Politics. Focus on What Matters.
The market hates indecision but as we head into the election, remember that earnings, taxes, and the Fed are what markets care about, not your politics.
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Well, we finally got a move in the VIX on Friday. I would not say the market was terribly volatile, but the VIX did perk up quite a bit. It continues to make higher lows.
We can rationalize it all we want by noting we have the end of the quarter coming up or the Middle East jitters or make anything up you want. And sure it’s possible it comes back down Monday but I still think a bout of volatility is in the cards.
Friday’s pullback was, quite frankly, more of the same in terms of what we saw last week. The small caps just swapped with the big caps for the sloshing around.
I have been noting that I think sentiment is complacent, not giddy. I think we had giddy in July. But there is that constant refrain of recession or soft landing. Obviously the former is bearish and the latter is bullish.
But I have started hearing a new concern about the election. Oh it’s not so much the outcome of it but that we might not know the outcome immediately. It seems everyone has short-term memory but no long-term memory. They are all looking back at 2020.
I say let’s look at 2000. We did not know the outcome there for about a month. Sure it was quite different in that the market was already in a downtrend. But I want to point out that the resolution of the election (in early December) didn’t exactly clear the market for lift off, did it?
The market hates indecision but it cares more about the financial aspect of the market than the political one. As we head into the election I want to remind everyone of this: earnings, taxes, the Fed, that’s the stuff markets care about, not your politics.
With sentiment in mind let’s check in on the put/call ratios because they continue to sink. The ten-day moving average of the equity put/call ratio hasn’t quite broken that prior low level but it is toying with it.
The total put/call ratio is similar. It keeps inching to that extreme but is not quite there yet. My guess is both get there by midweek this week.
As for breadth, it remains good with Friday positive while the S&P was red. The McClellan Summation Index ticked back up, but just barely. A net negative -300 advancers minus decliners on the NYSE will send it right back down again. That means there is very little cushion for any sort of pullback now.
Finally, despite the move down in the Oscillator, we remain overbought.
