Hope you are all doing well. Wow! A lot of news this week. The major U.S. stock indexes recorded their strongest week in 12 months, posting gains of nearly 5% to 6%. The NASDAQ, the S&P 500, and the Dow all set record highs. The latter two briefly eclipsed the 6,000- and 44,000-point marks, respectively, before retreating to close slightly below those levels. As Veterans Day is tomorrow, I have broken down this week’s update using quotes from General George S. Patton.
If everybody’s thinking alike, then somebody isn’t thinking
Patton believed in healthy debate and hearing arguments on different options. That is what we have had over the past few months culminating in Tuesday’s election. Chances are you are either excited about the next 4 years or extremely nervous about them. The reality is the President makes really very little difference on stock returns. Stocks rallied on Wednesday. The rally was not driven based on who won. Rather it was based on the manner and aftermath of the victory. Markets reacted positively to the fact that there was civility on both sides and a concession speech without waiting weeks for recounts. The market had priced in a prolonged election process with recounts and legal challenges in the swing states. That didn’t happen, the decisive victory eliminated that uncertainty. Congressional elections unlike the President do have an impact on stocks, it is best to have a divided Congress. However, a clean sweep by one party of the White House and Congress has not been too bad for stocks either.
Take calculated risks. That is quite different from being rash.
The U.S. Federal Reserve gave the market exactly what it wanted. Hard to argue with the Fed as they have done a masterful job over the past 18 months. I will chalk up this recent cut to them taking a calculated risk. I thought they would be more cautious. However, they cut rates by a quarter-percentage point, following up on its half-point reduction approved in September. The latest move was widely expected by the markets. Stocks and Treasury yields were steady after Thursday’s announcement.
Success is how high you bounce when you hit bottom.
After spiking at the beginning of September, anxiety subsided and consumer sentiment has bounced. The gauge that tracks investors’ expectations of short-term U.S. stock market volatility fell sharply in the wake of Tuesday’s election. At Friday’s close, the Cboe Volatility Index (VIX) was down about 31% for the week and was trading at its lowest level in more than three months. U.S. consumer sentiment rose to the highest level in seven months, exceeding most economists’ expectations.
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