Stocks are surging as we kickoff the month of November, but this sector may see the next big move.
November 2 (King World News) – Peter Boockvar: The S&P futures got their lift around 3:45am est when European markets rallied and if Europe is rallying in the face of the shutdowns, that was a green light for the US. I’m hopeful that while the winter will be tough, we are at the beginning of the end of this virus dominating our lives because of the vaccine news we have coming this month and the ones to follow. If the case, the 2020 market laggards like commodity companies, leisure/hospitality and banks will be the 2021 market winners and vice versa. Valuations don’t just matter when something gets too expensive but when they get too cheap also.
So crude oil continues to be the commodity laggard with industrial metals, precious metals, the grains and even natural gas all rallying sharply recently. I believe that the supply cuts that have taken place is the set up for when eventually demand recovers. I’ve said bonds are a major sale on a vaccine. Well, crude oil and the energy stocks will be a major buy upon one…
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As we think about all the different market and economic scenarios post election depending on who wins, I want to bring what former NY Fed Governor Bill Dudley said last week back into the conversation. He again said that while the Fed could always do more, they are effectively shooting blanks at this point. If there was one thing for sure going back 30 yrs to the Greenspan era it was that easy monetary policy was always there to ‘help’, aka, the Fed put was in place and was mostly effective. I say ‘mostly’ because it didn’t stop the crash of the NASDAQ 20 years ago and after it drove the housing bubble, all the easing that followed couldn’t stop the downside aftermath but otherwise, it was there with plenty of rates to cut and Treasuries to buy and markets believed and had faith in it.
So if Dudley is right, and I firmly believe he is, then the tax, spending and regulatory policy that either President employs will have an outsized economic and market outcome because any mistakes won’t be able to be mitigated by Fed policy and with respect to inflation, could be exaggerated by them. Bottom line, we are entering new territory with monetary policy and its side effects and fiscal policy both expansive (spending and/or tax cuts) and restrictive (slower rate of spending and/or tax increases) will have an outsized impact with the direction of inflation being a byproduct.
With respect to the FOMC meeting this week, there is chatter that maybe they extend out the Treasury maturities they buy within the current QE4 program in order to further lower long term rates. With long term rates already so low this won’t have many benefits and the negatives will continue to pile up for small and medium sized regional banks whose loan margins would continue to get squeezed. Small and medium sized businesses are most reliant on these banks as they don’t have access to the capital markets like big companies do. This gets to my continuous point that current monetary policy is actually restrictive and not accommodative. I think it was my friend Steve Eisman who said QE is monetary policy for rich people and we now know it is for rich companies as well.
HIS GREATEST INTERVIEW EVER: Sean Boyd predicts $3,000 gold and shares with KWN listeners around the world the big game-changer in the gold market in his greatest interview ever. To listen CLICK HERE OR ON THE IMAGE BELOW.
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