In American political jargon, an October surprise is a news event deliberately created or timed or sometimes occurring spontaneously to influence the outcome of an election, particularly one for the U.S. presidency (Source: Wikipedia). Well... it started last week due to unfortunate timing of death of Supreme Court Justice Ruth Bader Ginsberg. President Trump and GOP senate members wasted no time in starting the process of nominating conservative judge Amy Coney Barrett. This by far could become most important election issue and hence can be qualified as October Surprise. Once justice Barrett is confirmed, Supreme Court would be 6-3 with conservative majority (first time in 100 years) and could have long term implications on many key decisions. This is one of the most important policy power Presidents and Senate members have and hence winning these elections matter so much. President Trump is the only president in recent history who got to nominate three Supreme Court judges in his first term. Nov 3rd would tell us if he gets second term or not. The polls suggest that Biden is going to be most likely winner unless election becomes contested and it goes to Supreme Court similar to what happened in 2000. And during Gore vs Bush election, Supreme court was 5-4 with narrow conservative majority and rest is history....
Let's look at market landscape... as predicted in previous blog "Fall is Coming", markets did start its September Swoon after reaching high on Sept 2. Since then S&P is down by 8% and Nasdaq is almost in correction (close to 10% down). Many high-flying tech stocks (FAANG group, Tesla) are down by 20% or so. Energy and Financials are still in doghouse and keep going down...As overall market, indexes are down for 4 consecutive weeks. However at same time IPO and SPAC market is bubbling like its 1999...So how would October which is known for major market crashes (1929, 1987, 2008) play out? And that too with so many unknowns like elections, Q3 earnings, virus surge, economy opening/closing, vaccine news and potential of busted holiday shopping season....
My prediction is that markets would bottom out in next few days and then trade sideways for rest of Oct. The tech earnings would be repeat of Q2 and companies which continue to show double/triple digit growth would be rewarded (Zoom is up by 11% last week and worth almost same as many big tech companies). Zoom, Peloton, DOCU, Cloud companies, Tesla, FAANG would regain their footing and start their march towards all time highs again by end of year.
Energy and Financials would continue to struggle but most likely won't go down much since most of the bad news is already priced in. Healthcare would have major ups and downs due to success and failure of COVID-19 vaccines. Healthcare is also very sensitive to election news since it can have outsized impact on policies like Obamacare...but in general markets would incorporate most of these October Surprises(s) and would be well positioned to recover and resume its march towards all time highs no matter who wins the Presidential election. S&P could be around 3500 by end of 2020. Interesting times....In the meantime, enjoy the sports season with College Football, NFL and IPL...
/Shyam
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