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Weekly Economic and Stock Market Commentary – November 2, 2020


As for the stock market specifically:

Well, October was October, and man-aged to close out the month with a down week. The turnaround from the beginning of the month was stark.  The month started off with a rally to near record levels, and ended off multiple percentage points from the end of September. Last week was the worst pre-election week on record.

Neither presidential candidate took the opportunity to state the market movement down because of the potential election of his opponent.  Both took credit for a big up day in the market a few weeks ago with both saying the stock market went up nicely one day because he won a debate.

There is a great deal of political commentary regarding the similarity between the 2016 election, and the 2020 election.  I won’t get into the political discussion, but there is a fair amount of similarity in my market research when comparing late October 2016 and late October 2020.
The current market is oversold slightly, and in WEALTH PRESERVATION mode.  That, too, was the condition the last week of October 2016 and the first week of November 2020.
I am not smart enough to tell you what will happen with the election or the market once the vote counting is reasonably complete, as there is much discussion that the vote counting won’t be complete for a few days or weeks.
It was a pretty bad week for the bullish percent indicators.  Each of them fell by a minimum of 8 percentage points.  This put all of them in WEALTH PRESERVATION MODE.

Remember, Xs mean OFFENSE or wealth accumulation, while Os mean DEFENSE, or wealth preservation.

Below is where our indicators stand as of October 30, 2020 (Courtesy Dorsey, Wright, and Associates).

On a general note: 

The Department of Commerce announced the US Gross Domestic Product grew at an annualized rate of 33.1% during the 3rd quarter, or 7.4% from the second quarter.  This was the highest growth rate since the statistic came into effect in 1949.  From my perspective – which counts since I am the author of this column – the actual numbers for the 2nd and 3rd quarters are meaningless given circumstances.  Overall, the economy is about 3.5% smaller now than at the end of December 2019.

I saw some people comment that the gross domestic product report is a backward-looking number.  The interviewer refused to take the opportunity to state that all economic reports reflect things that happened in the past.

The Commerce Department announced that September Consumer Spending rose 1.4% in September, which was well-ahead of the anticipated gain of 1.1%.  Once again, the rumors of the demise of the American consumer are false.  An important aspect to this report is that it is unaffected by stimulus programs that ended in August.  Much of the new spending went to automobile purchases, gym memberships, and doctor and dentist visits.  Overall, consumer spending is about 2% lower in comparison to January 2020.