Updated: Dec 21, 2020
More good news this week: we continue to see a decline in daily cases and death counts related to COVID-19. With death rates scaling back and the Democratic and Republican National Conventions fading into the past, the media is shifting news coverage to other topics.
A popular debate topic is the “Vote by Mail” option, which President Trump claims invites voter fraud. When it comes to this debate topic, our concern isn’t engaging in an argument, but rather understanding current political risks. If we don’t know who the presidential winner is on November 3, problems could ensue for the market and economy.
This leads us to the topic of “mirage or oasis.” What is “red mirage”? According to Christopher Zara from Fast Company, it is a name for the worst-case election scenario. The term is described as “an election outcome in which early results appear to favor President Trump, but then tip toward a decisive victory for Joe Biden as more mail-in ballots are counted.”
Favoring U.S. Domestic Equity
Going forward, we believe U.S. domestic equity is favorable to other regions, considering the Cobb Douglas Production Function below. The U.S. is dominant in technology and has a growing labor market.
The Cobb-Douglas production function is the relationship between two or more inputs and the outputs that can be produced — as well as the total factor of productivity. In this case, the inputs are labor and physical capital. (View our video recap for a more detailed description of this concept.)
The money supply is slowing down on the growth scale, and it appears to be weakening at an aggressive rate. In general, we want to buy into weakness and sell into strength.
What happens from here all depends on the Fed’s activity. If the Fed explodes money supply again, everyone would be back in the stock market at 100%. If the money supply slowdown intensifies, everyone will take even more profits. We won’t try to outguess anything, but rather will let the numbers tell us what to do. Volatility may not be our friend in the short term, but it will provide a wide opening for major opportunities in the long run.
U.S. Dollar Index
The U.S. dollar has stabilized over the last couple of weeks. It is not a coincidence that gold is giving back some of its recent gains. However, this is likely due to some optimism in the market.
Gold is not the only asset giving back recent gains. There is a rotation away from technology as well, reflecting some fear in the market.
Follow GWS on YouTube
For the full video recap of the webinar on which this blog post is based, follow GWS on YouTube. (If a recent episode isn’t posted there yet, it’s still in compliance review). And be sure to tune in to our weekly Gatewood Wealth Solutions Market Webinar to hear updates on the current state of the market and economy. As always, we welcome you to share our broadcast links on social media or with your friends and family. They are more than welcome to listen in and learn our perspective on the market and the economy.
If you have any questions, please contact your Lead Advisor or any other member of our team. We are here for you.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. All investing involves risk including the possible loss of principal. No strategy assures success or protects against loss. Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets.