Morning Notes — Stimulus

Near-term: At the moment, the S&P 500 (SPX) is on track for a third consecutive lower daily close on gloomy COVID headlines and more realistic US fiscal stimulus expectations.  After successfully holding technical support at ~3220, the SPX rallied ~9.5% in three weeks and moved from short-term oversold to short-term overbought.  We mentioned this yesterday in the section on regional banks.  Nearly all of the stocks we cover are either in, or near short-term overbought status and we’d like to see it burn-off before adding.

Stimulus: Pre-election stimulus expectations are deservedly near zero.  The perceived odds of contested presidential election results are lower given Biden’s sustained polling lead, which improves expectations around the timing of post-election stimulus.  Senate polling data shows tighter races and the outcome could mean the difference between ~$1T of incremental spending next year (GOP majority) or ~$3.5T+ (Democrat majority). The economy is going to get fiscal stimulus if it needs it under either scenario, but we’d take a cautious pre-election approach if the market begins chasing increased expectations for large-scale stimulus.