Yesterday’s ‘afternoon fade’ had the S&P 500 closing below technical resistance at ~3581. A sustained close above ~3581 opens the possibility of a new high to ~3930. The S&P 500 is a market cap weighted index with its highest sector concentration in Tech (25.7%).
The 90% efficacy number from the PFE/BNTX candidate is surprisingly high. Of the first 94 people to get infected, more than 84 of them were on the placebo. Note that 50-60% efficacy is generally considered ‘good’, while 75% is probably considered ‘great.’ At 90% efficacy,
Trading patterns and option term premia suggest the big volatility buyer in Tech is back. You can also see this in post-earnings stock price behavior the last two days.
Equities are higher again today as markets bake-in a Biden and McConnell outcome. Trump still has a path to 270 and a certain GOP Senate majority waits for final results of Georgia. State law requires a candidate take
Markets generally prefer a balance of power in Washington. Expectations for Republicans to retain a narrow Senate majority largely de-risks assumed potential headwinds from higher tax rates and increased regulations under a Democrat-sweep scenario.
Better-than-expected Q3 reports from Tech companies mostly see a sell-the-news reaction as investors slowly shift away from growth/momentum toward cyclical/value sectors.
Any election scenario that doesn’t involve a weeks-long contested outcome should result in an initial equity market rally. Rotation into cyclical/value sectors at the expense of Tech is more likely under the Democrat sweep scenario, while other scenarios probably result in a more broad advance.
Equities will likely remain under pressure until the election is completed. Markets apply an uncertainty discount to upcoming events and will prefer the certainty of almost any outcome next week. The question is whether that result comes on Wednesday or later.
Many sell-side strategists have recently warmed up to the Democrat sweep scenario based on expectations for massive fiscal spending. But the initial market reaction to a Democrat-sweep might be cooler than anticipated because it’s the consensus view and eventually includes higher tax rates and regulatory
Yesterday, the S&P 500 broke our near-term support level at ~3400 and currently testing secondary support at ~3295. A number of popular CTA triggers exist at this level and a break below could lead to increased selling pressure.
