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“The future is always beginning now.” – Mark Strand
Allow me to first off clearly state that this writing is not a political piece. I’m not a fan of any of our presidential candidates. There is no other way of describing this election year as anything but a complete and utter sh*tshow. But as I often say to colleagues, I may not choose the hand I’m dealt. I simply choose to play the game.
Now, to be clear no one knows what will happen on election day. Trump appears more to be the “Black Swan” candidate, while Clinton is the expected winner based on current polls. If the market has indeed priced in a Clinton presidency, it stands to reason that a period of significant volatility and re-adjustment could occur should that scenario not play out. Several indicators in the near-term suggest that there is defensive posturing under way, as leading indicators of risk began flashing signs last week prior to the FBI’s new email revelation to Congress.
Utilities suddenly are outperforming, and sharply. As shown in our 2014 Dow Award paper, Utilities tend to outperform in advance of stock market corrections.
Lumber has begun to aggressively underperform Gold, which as shown in our 2015 NAAIM Wagner Award paper also tends to happen in advance of corrections.
As this is happening, Treasuries are weakening. Normally this would be bullish, but there remains a very real possibility that the bond market correction continues alongside a newly started stock market one. This is happening largely due to inflation expectations sharply making a comeback. From a market psychology perspective, it seems plausible that this could create a scare that the Fed needs to be more aggressive at raising rates than once thought.
Correction guaranteed? Of course not. Many intermarket signals which have historically been proven to get ahead of major declines have had false positive after false positive in the last few years. This time may be different however as last week’s news may be the correction catalyst. Many have been anticipating a correction in the lead-up to the election which has yet to materialize. Many have appeared foolish being concerned that this would occur when it simply hasn’t.
Just remember, there is a fine line in markets between been early, and wrong.
This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.
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