The Presidential Election

Will Guide The Market

It’s the same old story. Over the coming months, expectations for what will be “post” the outcome of the upcoming presidential election, will rule what transpires in today’s market. If you do not agree with me then perhaps I can sell you a bridge over the East River or some oceanfront property that’s only underwater half of the day cheaply.

Come on folks, this is the time when reactions are predictable. Unfortunately, as it is currently “etched in stone”, neither candidate fits the parameters I seek. Quite frankly they never have post-Reagan. That’s just the way it is. We’re going to pick between the lesser of “two evils” like we always do. For the first time, however, we have a previous record of outcomes for both. That’s what is on the table for me. How about you?

It Was Trump Thursday In Washington

Donald Trump huddled with at least 80 CEOs on Thursday in Washington with a clear pitch. If he is elected president again in November, the CEOs are going to see tax cuts and a curtailment of business regulations.

Trump said that if he is returned to the White House he will cut taxes, including basic income taxes, and resurrect the same economic policies enacted during his first term in office. Trump said he wants to bring the federal corporate tax rate down from 21% to 20% if he were to become president.

Trump also mentioned to the CEOs a recent proposal he rolled out in Nevada, to quit taxing worker tips. He then told the CEOs a story about how excited the “tip workers” were about his proposal.

Trump spoke for about sixty minutes at the meeting to JPMorgan Chase CEO Jamie Dimon, Citigroup CEO Jane Fraser, and Bank of America CEO Brian Moynihan. Tim Cook, Apple’s CEO was also there.

For Trump and the CEOs who attended, the meeting was an effort to ‘mend’ relations after some had distanced themselves from the “former” president. In 2017, the Trump administration’s major business advisory groups were disbanded after members began resigning in response to Trump’s attempt to equate “both sides” of the Charlottesville, Virginia, protests, one side of which featured white nationalists.

In the meeting Thursday, Trump also took a dig at Biden. “We need a president who is at the top of his game, and let’s face it, this president is not at the top of his game,” he said. Trump told a meeting full of House Republicans earlier in the day about the idea of imposing an “all tariff policy”. He said would enable the U.S. to get rid of its income tax.

Regardless of the actual points presented and discussed, Trump was welcomed by all in attendance and a spirit of unity prevailed. Watching a political party come together and unite for a common cause is essential. The Republicans have illustrated just that.

What Was Really On Trump’s Mind?

Former President Trump gave a wide-ranging speech to House Republicans early on Thursday, lashing out at his political enemies and praising his allies. Trump criticized the prosecutions against him, calling the U.S. Department of Justice "dirty, no good bastards". Trump touted the fundraising and popularity boost he got from his various state and federal criminal charges.

Trump called President Biden the "worst president in history." He referred to Biden as being a "dope." Multiple House Republicans said the meeting went well, and that Trump touched on many topics, including military, trade, and abortion policies.

What was really on his mind was the fact that Russia has submarines off the coast of the United States and that he’s concerned. We all should be concerned that we've got a president who’s so weak that he’s allowed this to happen. Kennedy would not have acted this way. Russia knows this administration will do nothing to prevent it.

Trump has a message and it’s effective. It is a “winning” message from a presidential race perspective. President Trump should just be banging Biden over the head every day on these facts and more. Republicans have effective messages on everything from abortion to the border, the military, and more. It’s going to be an interesting election.

There’s More

The stock market may be a complex beast, brimming with information and conflicting opinions, but one thing's clear: it has been on a tear. The Nasdaq has been setting new all-time highs, extending its winning streak to six weeks. Meanwhile, the S&P 500 is shattering records with its longest streak of highs, surpassing a 68-year record of 27 highs set in 1954. It's been 322 days since the index last closed down more than 2%.

Big tech remains the driving force behind this bullish trend. Historically, tech stocks have dominated bull markets, outperforming other sectors, and are continuing to do so today.

Further bolstering the bullish case, a key indicator shows that over two-thirds of all stocks are currently trending above their 200-day average, a historically bullish signal. This level, currently at 66.9%, has often preceded positive returns in the past. A storm cloud looms on the horizon. A drop below 60% in this indicator could trigger investor concern and disrupt the current uptrend.

The ratio of high-yield bonds to U.S. Treasuries suggests a lack of defensive rotation by investors. This ratio rises when investors shift toward safer assets like Treasuries during periods of uncertainty.

The High Beta vs. Low Beta ratio reinforces the bullish trend. The high-beta sectors, known for their volatility and growth potential, are outperforming their counterparts. This pattern, which began in June 2022, indicates investor confidence in riskier assets and a preference for growth over stability.

While the market can change quickly, current data points to a continuation of the bull run. Remember that future performance is never guaranteed. Stay informed and adjust your strategy as market conditions evolve and hedge buying longer-term VIX calls.

The Market’s Too High 

Between the breadth of the market to every ratio I watch, a consensus illustrates that it is overvalued. That doesn’t mean it’s not going higher. Two things just make it a bit worse. First, it’s summer and that’s always a problem as the street takes off during this period. Second, we’re in the midst of an election. The only ‘worldwide’ events that can throw a wrench into this scenario are wars in Europe and the Middle East. I like to be ahead of scenarios like this so I’ll hedge with long-term out-of-the-money call options on the VIX and WTI Crude. They’re higher than when purchased. What do you think?

In 1967 the Beatles released “Hello, Goodbye”. The song’s lyrics are reflective of today more so than when the song hit the airwaves. I’m a position trader, seasonally active but for the most part cautious and hedging in nature. Interest rates are going to come down. Without this being an election year, stocks would normally follow. Interest rate declines do not mean that things are good. Nonetheless, as spoken of above, markets look to be heading higher but that can change on a dime. Protect yourself as educated investors and traders do and learn the value of VIX calls. You’ll be happy you did.