Trump today, Biden tomorrow

The stock market is a futures market. It’s mostly about what is going to happen next. But it starts with an analysis of what things are like now and what’s likely to change.

I think history will remember three things about Trump:

–the attempted coup, which as far as we know today was: not a spur-of-the-moment thing, planned by his former campaign staff, abetted by Congresspeople who gave Capitol tours to conspirators and texted updates during the insurrection, justified by lies about voter fraud, aided by hostile foreign governments.

–the economic devastation caused by the “it’s a hoax” approach to the coronavirus: GDP decline worse than in 2009, with the death count at 400,000 and rising by 3,000 daily. And the US appears to be running out of vaccine.

–an economic policy that discourages innovation and has likely cut GDP growth potential in half.

For us as investors, I think the third is by far the most important.

If so, the key questions are:

–how quickly can Biden reverse Trump’s ill-conceived economic program, and

–how soon will the stock market begin to discount better times ahead.

For me, a key indicator is the spread among the Russell 2000, the S&P 500 and NASDAQ. Since the election, the clear winner among the three is the Russell 2000 +32%). NASDAQ is in second place (+13%), with the S&P (+10%) a close third. After wobbling a little on the morning of the 6th, the pro-Russell trend has, if anything, accelerated.

Year to date, the figures are: Russell 2000 +8.5%, NASDAQ +1.8%, S&P +1%.

I really don’t like talking about my own performance figures–purely superstition. But I’m up about 7% so far in January, despite having a very NASDAQy portfolio. I’m not 100% sure why.

I have two hunches, though:

–the ocean of liquidity (which would never be here if Trump weren’t so epically dysfunctional) is allowing smaller, speculative, secular growth names to become more visible. Maybe this is just substitution of Robinhood for sports betting and will disappear as the coronavirus comes under control (but maybe not).

–the other is that the market is thinking (correctly, in my view) that we’re not going back to anything close to the former status quo. If so, the S&P has a lot of baggage to get rid of. This suggests that jettisoning losers will likely be at least as effective over the coming months as finding winners (not a big insight–this is usually the case–but still a useful reminder, I think).

PS: GM is up by almost 30% year-to-date, despite its fifty-year history of ineptitude and its recent flirtation with Nicola, a company whose story reads like the emperor’s new clothes. Maybe there’s something to GM this time around. If not, it’s a signal that the secular growth/capital flight theme that’s been driving the stock market since 2018 is veeerrrry long in the tooth.

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