10-02-2020: Trump has COVID... Now what?

Just a quick note on my take this morning and my plan for today...

First, my hope and prayer for President Trump and Melania is for a speedy recovery. Our country is just over a month away from one of the most important elections in history. The stakes could not be higher. Whichever side of the aisle you are on, we want the best outcome for our great country and having our President contracting one of the deadliest viruses in modern history just before the election is a non-trivial event.

But, now is not the time to panic. I am not. I am watching the data. As you know, the employment numbers are out for the month of September and they are not nearly as strong as many had expected. This is another indication that the recovery rate is slowing... still recovering... but not accelerating into the 4th quarter.

The market futures are down this morning, but not falling off a cliff. We are between 10% and 20% invested, depending on the model. That means we are 90% to 80% in cash... a good place to be this morning.

I suspect this is more of a buying opportunity than a selling opportunity... the data tend to support that idea. I still plan to be 100% cash prior to the election on November 3, but I can see the potential for a big rally prior to the election... here is why:

  1. The slowing rate of recovery could be sufficient to push the Republicans toward Pelosi's relief bill of $2.2T. The President's number is about $1.6T. I can see Mnuchin moving more toward a deal now than before. A $2T+/- recovery bill is desperately needed by millions of Americans and businesses. Playing politics with people's lives is despicable and while I blame one side far more than the other, it needs to stop. Hopefully, a deal will be reached soon. If it is, the market will boom higher.

  2. If Trump recovers quickly, I suspect a lot of people will be encouraged by how well current treatments are working. This 'might' become an incentive for increased optimism that the time for a return-to-normal is sooner than later. A population with a positive mindset is good for helping the economy recover more quickly. This 'could' be another reason why the market might rally higher.

But... this market could languish between now and the election. Indeed, it 'could' fall off a cliff. If it does, our stops will fire and if it happens quickly enough, we may even switch into some inverse ETFs, but with only a month before I take us completely to cash, I am not in a hurry to do anything that will put too much risk into my client portfolios.

While, for the most part, I am not buying today... I am looking seriously at adding one or two more positions in our TQA model by buying a bit more into this morning's sell-off. The TQA model is designed to take on more risk and the market is just not acting like the President's COVID-19 infection is a big enough game-changer to throw the market into a bear-cycle reversal... not yet, anyway. In fact, I am rather encouraged that the market did not accelerate lower when the jobs numbers came out about an hour ago. This gives even more credence to the likelihood that this sell-off will be short lived.

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