reopening rally back on?

That’s what it looks like from yesterday’s price action and today’s futures–both showing the US economy-centric Russell 2000 outperforming the much more international NASDAQ.  The latter, of course, has been the engine driving US stocks for the past 2 1/2 years.

The reason?   Trump continues to do substantial damage to the long-term prospects of the US.  That hasn’t changed.  Nor has the fact that his management incompetence has caused more American deaths that all the wars the US has been in since 1945.  But the performance differential between NASDAQ and the Russell 200 has become so massive that a significant countertrend rally is on the cards.

like a bad movie script…

That stopped in its tracks last week when Trump tweeted segregationist messages urging police to shoot/imprison demonstrators protesting the death of George Floyd at the hands of Minnesota police.  It’s not pretty to see a president eager to incite widespread domestic violence he can call out the army to suppress (something no sane person would want) simply to distract attention from the coronavirus deaths his incompetence is causing.

Suddenly the stock market was back late last week to “capital flight” mode (I’m using this term because, to me, the market has had the feel of Mexico in the early 1980s).

…swiftly tossed into the reject pile

The president basically can’t deploy federal troops into a state without local permission.  And Trump seems to have lost his P. T. Barnum-like persuasive power since wilting during the virus crisis.  Governors appear to have been appalled by his advocacy of violence during a recent conference call.

why is the market rising as this scary story unfolds?

I don’t know.  Nevertheless, this is what’s happening.

No matter what, I think internal market dynamics favor the R2000 over NASDAQ for the moment.

I think ultra-low interest rates favor stocks over fixed income or cash.

Where else would money go  …Japan?  …China?  …the EU?   …the UK?   …emerging markets?  All of these places have substantial warts, either in terms of their economies or their stock markets.  Because of this, the first step in Trump-driven capital flight, I think, would be portfolio concentration in names with global reach, dual listings or the ability to shift domicile away from the US, i.e., a shift away from R2000 and toward NASDAQ.

NASDAQ is now pulling the R2000 up with it.  I also don’t think the current situation would remain stable if Wall Street begins to consider the large damage to long-term economic prospects, to say nothing of civil liberties, were Trump to be reelected.









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