Whenever there are elections or primaries, we like to spend time flipping around and listen to what different networks are saying. Based on what we’ve heard over the past two nights, the support for Donald Trump from Fox News is waning. That wouldn’t be taking place if they didn’t think he was going to lose. Of course, by saying that VP Biden is probably going to win the election, we’re not telling you anything you don’t already know...but we just thought that the recent tone from Fox News is confirmation that President Trump is going to lose.

Anyway, the rally in the stock market broadened out yesterday...so that is positive. The breadth on the S&P 500 improved to almost 5 to 1 positive (from a slightly negative level the previous day...despite the big rally)...and the S&P 500 equal weight index rallied just as much as the regular S&P 500 index (compared to badly underperforming that index on Wednesday).

This does not mean that the rally will continue in a straight line. The futures are trading lower this morning, so we could/should see a pull-back going into the weekend. In fact, a short-term pull-back would be normal and healthy after a 7.4% rally over just 4 days...and given the fact that the definitive result on the election has not been decided yet. More importantly, there are still some serious questions about what kind of impact the new wave of the coronavirus will have on the economy. This newest wave is still in the very early innings, so there are definitely some questions about how extensive any renewed lockdown might be in the coming weeks.

The strong employment report is giving the stock futures a bit of a bid...and thus they are trading off their early morning lows. However, given the huge moves we’ve seen this week, we would expect that the stock market would still give back some of its gains today. There definitely still plenty of uncertainty out there...and thus the short-term traders will have plenty of reasons to take a few chips off the table in front of the weekend after this week’s big gains.

To be honest, we believe that the stock market WILL still be watching something other than the election results, we just don’t think it will be the employment report. Instead, we think they’ll be watching the currency markets. The dollar is not the only currency we’ll be watching. The Aussi dollar (AUD) is also another key currency to watch (due to the fact that it is a great indicator for the “carry trade”). The correlation between the AUD and the stock market has been a very strong one for a very long time. The AUD is lower this morning...and if it continues to fall, it could/should cause the stock market to give back more of this week’s gains.

We do need to point out that the U.S. dollar is actually a bit lower this morning. Given that the correlation between the stock market & the U.S. dollar is an inverse one, the stock market will be buoyed by any further weakness in the greenback today. However, if it bounces back...which is not out of the question given its outsized decline over the past two days...it will cause more profit taking in the stock market going into the weekend. Therefore, short-term traders should be keeping a very close eye on the USD and the AUD all day today.

We want to reiterate that any short-term pull-back would be normal and healthy...and unless we get huge surprise over the weekend, we do not think it will turn into a major reversal from this past week’s gains. As we have highlighted quite a few times recently, the stock market usually rallies into the end of the year of a Presidential Election year. We believe that this has to do with “sentiment” more than anything else. People (people in general...not just investors) tend to become more optimistic about a new Presidency (or even a second term of sitting President). That can have a powerful impact on the markets for a while...especially when they are going through the holiday season.

The comment we just made might sound a little bit corny...and it’s not in the investment text books, but it is absolutely true! History tells us that the markets can FREQUENTLY disregard the long-term fundamentals for a while...and move solely on “hope”...and this tends to happen every four years (especially over the last 6-7 weeks of an election year). So even though this market is expensive...and a new wave of the coronavirus is just beginning...the market can rally further between now and New Year’s Day.

Matthew J. Maley

Managing Director

Chief Market Strategist

Miller Tabak + Co., LLC

Founder, The Maley Report

TheMaleyReport.com

275 Grove St. Suite 2-400

Newton, MA 02466

617-663-5381

mmaley@millertabak.com

Although the information contained in this report (not including disclosures contained herein) has been obtained from sources we believe to be reliable, the accuracy and completeness of such information and the opinions expressed herein cannot be guaranteed. This report is for informational purposes only and under no circumstances is it to be construed as an offer to sell, or a solicitation to buy, any security. Any recommendation contained in this report may not be appropriate for all investors. Trading options is not suitable for all investors and may involve risk of loss. Additional information is available upon request or by contacting us at Miller Tabak + Co., LLC, 200 Park Ave. Suite 1700, New York, NY 10166.