Three Highs & a Low

Macro Perspectives: Mon 12 Oct 2020

We ended last week continuing to hear talk of more stimulus, and it continues to look like it won't happen - there is little political gain for the democrats to accept a deal that doesn't advance/fund the agenda they look to pursue in a Biden presidency.

Still, as we discussed Thursday, the economic rebound has been incredibly aggressive, on pace for 35% annualized growth for Q3. The question is, will the bridge that has been created with the help of the PPP program and stimulus checks fall short? If the U.S. economy doesn't fully open very soon OR if we don't get another relief package very soon, it's only a matter of time before the bridge runs out and the suffering is amplified.

My view: If we get a democrat sweep, expect a massive package to come, to kickstart the Biden $2 trillion climate response plan. If we get a republican sweep (much lower probability), expect a trillion dollar plus infrastructure package.

A split Congress, in the case of either president, would mean no more money, unless we get an extended pandemic timeline. In that case, history shows us that you get action from a split Congress only when they get scared.

With the above said, the odds makers now have a "blue wave" priced at a better than 60% probability. Given that it would clear a path for a big government spending package (even bigger deficit spending), the markets seem to have started adjusting for that outcome.

Week 42 resulted in; higher stocks, higher interest rates, higher commodity prices, and a weaker dollar.