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Column: How the Market Learned to Stop Worrying and Love the Blue Wave – Mike Dolan | Investing News

Column: How the Market Learned to Stop Worrying and Love the Blue Wave – Mike Dolan | Investing News

LONDON (Reuters) – Just about the only market consensus all year on next month’s U.S. election was that it would be volatile around the vote – but even that’s turning upside down three weeks before polling.

A narrow and disputed election result has been one of the main investor fears for months. Bank of America’s October global fund manager survey still had 60% of its respondents expecting the result to be contested – and three quarters said it was the outcome likely to cause most market disruption.

But with Democratic challenger Joe Biden’s consistent opinion poll lead since May widening into election day, bookmakers’ odds on a clearcut outcome and Democrat clean sweep of the White House and both Houses of Congress are narrowing.

Investment banks and asset managers, who have for decades argued markets would baulk at tax and spend policies and prefer congressional gridlock to curb any excesses, are now positively embracing the likelihood of a clean sweep for a Democratic Party expected to spend big and also raise wealth and corporate taxes.

With less than a month to go, Wall Street stocks are racing to record highs again and long-elevated implied volatilities of the S&P500 benchmark – the VIX ‘fear gauge’ and its November and December futures contracts – are draining to 6-week lows.

Opinion polls now put Biden’s lead over incumbent Donald Trump in double digits, almost twice September levels. Bookmakers in Europe put Trump as the 7/4 outsider, his longest odds of the campaign, and the Democrats are now favorite to take to take key swing states – Arizona, Florida, Michigan, North Carolina, Pennsylvania and Wisconsin.

Online market PredictIt puts the chance of a Biden White House as high as 66% and a Democrat clean sweep at 59%.

Far from running scared, the investment world

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Stop Betting Against This Market. More Upside To Come For The Barstool Crowd

Stop Betting Against This Market. More Upside To Come For The Barstool Crowd

If you’re waiting for an entry point, just pull the trigger, already. This market has more upside. The Fed’s got your back, at least for the rest of this year.

Equity markets started the week in risk-off mood, but Wednesday had the S&P 500 up 1.74% and the MSCI Emerging Markets Index up 1.10%. MSCI China was right in linen, maybe up one bip more. Delayed fiscal stimulus and an ongoing public health crisis is not scaring Wall Street. When Mr. Market hides in the closet, he doesn’t last in there for long.

“Continued extraordinary global monetary support will enable markets to move higher over the medium term,” says UBS CIO Mark Haefele.

With that in mind, global-minded investors and the Barstool crowd should take three actions:

Investors large and small are going to have to take advantage of volatility, and buy on the down days. Put cash to work “right away” is nearly always the best strategy.

“Given the uncertainty of the outlook, some investors may prefer to build up longer positions using near-term volatility,” says Haefele, recommending investors buy the dips.

The Russell 2000 Index, which focuses mainly on mid-cap stocks, is underperforming the MSCI EM, mainly because that American index is loaded with companies facing economic restrictions, while the MSCI EM is loaded with China and large cap stocks that have been a favorite of investors since the pandemic was declared in March.

UBS’ Haefele thinks the next leg of the rally will reflect a return to “more normal” economic conditions, and that should benefit value and cyclical stocks

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