The stock market has loved President Trump. His policies have been the major factor behind the market’s rise.
Some people think that if there is a Democratic sweep in the November election, many of Trump’s policies will be reversed and taxes will increase. Based on that analysis, the stock market could fall about 20%.
But for rare birds who attempt to rationally understand the stock market, it may come as a shocker that under one scenario the stock market may rise about 12% on a Democratic sweep. To understand this scenario, think of a party of drunkards where everyone loves a person who serves the most alcohol. At present, the stock market is behaving like a party of drunkards. The equivalent of alcohol is massive borrowing and money printing. Thus, the stock market is loving a potential Democratic sweep because Democrats will borrow more than Trump has.
Prudent investors may be troubled. How would the borrowed money be paid back? Is there a limit to borrowing? To help navigate these treacherous conditions that are driving the stock market higher, let’s explore with the help of a chart.
I’d like to add that I am politically agnostic. My sole objective is to help investors. This isn’t a politically driven column.
Chart
Please click here for an annotated chart of the S&P 500 ETF SPY which tracks the benchmark S&P 500 Index SPX.
Note the following:
• The chart shows the measured target for the stock market is S&P 500 level of 3,800 points from a technical perspective.
• The target is based on excluding the coronavirus dip encased in a red rectangle on the chart. If this dip was not excluded, the stock market target would be higher.
• The reason for excluding the coronavirus dip is that this is an abnormal one-time situation unlikely to be repeated. Further, the expectations at present are that there will be a vaccine.
• Buy zones are powerful. They often give investors opportunities to buy good stocks and ETFs at great prices. The chart shows that many stocks and ETFs fell into Arora buy zones during the market swoon, including Apple AAPL and Microsoft MSFT.
• The stock market has hesitated to make a new high in the S&P 500 due to rising interest rates. Interest rates have risen from a low of 0.51% to 0.71% on 10-year Treasuries. This has been the result of inflation indexes coming in hotter than expected….Read more at MarketWatch.
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