Up Late
Posted on Sunday, November 8th, 2020
Well, that was an exhausting week. We stayed up until 2am on Tuesday for the election results. (Diane and the kids made it until about 930pm. I usually never make it past 9pm on a normal night myself.) I guess I will score myself as having gone 1 for 2. I saw Trump winning in a very close election. I was spot on about it being close but not so right about the winner.
The end of the week saw us up late again. We were up until midnight on Saturday night watching our beloved Notre Dame Fighting Irish beat my brother’s Clemson Tigers in double overtime. What a week! This is ND’s first win over the #1 team in the country in 27 years! The reason I know this is because 27 years ago ND would lose the very next week to Boston College. That was my first Thanksgiving with Diane’s family. Wouldn’t you know it – They all went to BC. That was a long Thanksgiving. Guess who ND plays next week? You got it – BC. #2020
So many clients wanted to know how the election was going to go and how the market was going to react. It was one thing to predict the election. It was another entirely to predict how the market was going to react. I can’t imagine anyone got both right. We ended up with a contested election as well as an unexpected pickup in House seats for the Republicans. A split with the White House going to democrats and the Senate to republicans had most of the pundit’s explaining that this was the worst of all worlds for the market. They were wrong. Here is what we learned.
The market rallied and it rallied very sharply. This was not due to Biden or Trump or democrats or republicans. Remember that we told you that the election was a known unknown? We told you that the market was prepared for a volatile week around the election and going into the end of the year. Investors had taken off risk and had prepared for large moves in the market having bought protection against downside risk. That is why we cautioned about a melt up. The market reaction was more of an air pocket as investors began to put risk back on and take off hedges in the aftermath of the election as markets did not fall apart. The lesson is this. The options market is moving the stock market. Known unknowns will not hurt the market substantially. We are in an era where it is only market events that are not hedged that hurt the market and the worst events will be liquidity events. We will keep you in the loop on that theme.
Bitcoin was again the big winner this week. Gold was up 3%. The S&P 500 was up 6.6% while Bitcoin was up 15.9%! We still believe that we are stuck in a range for stock prices but we are approaching the top end at 3600. The S&P closed at 3509. Markets tend to break out of ranges they way that they entered and history says that we break out of this range to the upside. That next target would be 4000 on the S&P. We may need to bring up the bottom end of our range from 3140 to 3250 and we may need to put risk back on in spite of valuations as the market enters its best time seasonally. That is from November until May. Gold is holding its levels and that has us sticking to our positions and possibly adding more.
Stay safe. Enjoy Masters week!
I think we aspire less to foresee the future and more to be a great contingency planner… you can respond very fast to what’s happening because you thought through all the possibilities, – Lloyd Blankfein
A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill
To learn more about us and Blackthorn Asset Management LLC visit our website at www.BlackthornAsset.com .
Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.