July 2, 2020 | Polars

Another few points heaped on the Dow Thursday, going into a historic July 4th weekend. Stocks have confounded the Debbie Downers, Karens and Chicken Littles among us by flipping a bird to the virus and romping higher. Since the March low the S&P 500 is up 43%. Even poor Bay Street has swelled 40%.

Despite the best efforts of public health officials to scare the crap out of investors, the gains have held. Looks like they will, too. If you were waiting for a new low, big fail.

Now, did you catch the latest US jobs stats? In June the American economy recaptured 4.8 million lost positions, with the unemployment rate tumbling to 11%. Big win. Analysts had predicted more than a million fewer new hires and a 12% jobless level. That’s why markets shot higher at the opening bell, and why the American president immediately hit social media with this message:

So it’s four months today that Americans are scheduled to choose the next president or keep the existing one. Never before has an incumbent faced double-digit unemployment, a broad-based social protest movement or a public health emergency which has (so far) killed over 132,000 citizens. Trump’s approval numbers, naturally, have been tanking. People are pissed. That’s why many are marching in the streets and a whole lot more are afraid for their health and angry the pandemic has gripped their country (as opposed to, say, Canada).

The jobs rebound still leaves millions out of work

Source: New York Times

It remains a possibility there will be no election. Not if a second wave hits, physical voting is deemed too dangerous and mail-in balloting too wonky and untested. Is that why Trump refuses to be masked? Some people wonder. But that’s as irresponsible a question as asking it Joe Biden has dementia. In the next 120 days, expect political circus and the clash of polar opposite views.

Speaking of Biden, he’s 10 or 14 points ahead in most polls, and strong in states with big weightings in the Electoral College. That gives him 85% odds of winning and explains his recent low profile. Politics 101 says, “if the guy you’re running against is imploding, just shut up.”

Mr. Market is now ruminating on the chances of a triple-header, with Democrats winning the House, the Senate and The White House. What might that mean?

Higher corporate taxes, as the Democrats roll back a part of Trump’s big cut of a few years ago. That’s estimated to dampen profitability about 5%. Ouch, but not fatal. Biden’s also expected to spend a ton of money on infrastructure programs, and the market likes that. It means big government stimulus in an area that creates a boodle of employment moving dirt and pouring concrete.

Biden’s viewed as more predictable than Trump, which is not hard. Markets like a steady hand on the tiller, since it allows for long-term tax and strategic planning. Death-by-Tweet would be a thing of the past.

The unknown is this, however: would Biden embrace or ignore the wild-eyed radicals on the Democratic left, like Bernie Sanders, Elizabeth Warren or the dreaded (if fetching) AOC? After all, implementation of the Green New Deal would be a huge negative for investors, while medicare-for-all would send shock waves through the mammoth medical and insurance complex.

And, meanwhile, how will Trump fight and claw his way towards reelection? Will it be constructively through a big stimulus bill that helps deal with a second wave of Covid, or destructively by inciting civil war with BLM and its growing supporters, shredding and defaming Biden or even seeking a vote delay?

Beats me.

But the virus. Maybe it has a plan.

There were 50,000 new infections in the US in a single day this week. A record. A dozen or more states have paused or reversed reopening steps. That makes some people think the giant jobs gain in June may well be just a snapshot in time, not a harbinger.

In short, we have no idea what lies between Independence Day and Election Day. And while the markets are likely to be choppier, more volatile and sometimes just weird, investors get this: (a) pandemics are temporary. They pass. (b) The US central bank has the market’s back, ready to pull out every stop necessary to prevent disaster. Downside is limited. (c) We know Trump already. But same with Biden. No shocks there. (d) The worst of the virus, in terms of economic destruction, is over. (e) Never bet against America.

In other words, stay invested. You will feel jolly and fat, come Christmas.

Garth Turner July 2nd, 2020

Posted In: The Greater Fool

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