LPL Street View: Stocks and the Election Don’t Mix

As concern over the upcoming election continues to build,  one of the questions we’re getting is whether investors should sell ahead of the election for fear the party they don’t want to win takes over the White House.

As tempting as this might be, we would continue to focus on the economy instead. “Whoever wins the election in November is going to take over an improving economy and one that likely won’t see a recession in 2021—and that matters more to stocks,” explained LPL Financial Chief Market Strategist Ryan Detrick. “Not to mention that many gains were missed out under President Barack Obama and again under President Donald Trump, due to disagreement over their policies.”

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Trump COVID FAQs

First and foremost, we wish President Donald Trump and First Lady Melania Trump a swift and full recovery. This October surprise raises the already high level of political uncertainty markets are dealing with as Election Day approaches. As market participants digest this news and consider the possibility that the President may not be able to fulfill his duties, markets may become more volatile. However, we believe Trump’s odds of beating the virus, as the United Kingdom’s Prime Minister Boris Johnson and Brazil’s President Jair Bolsonaro did, are quite good. As the President and first lady of the United States, Donald and Melania Trump will be monitored closely and have ready access to the best health care in the world.

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Three Market Takeaways from the First Presidential Debate

The first presidential debate is now in the books, with two more (maybe) ahead and a vice presidential debate on October 7. The debate was raucus, occasionally uncouth, and more than a little surreal for viewers at home. But did anything happen that could potentially move markets? Probably not.

“Despite the chaos, viewers probably came out of the debate with largely the same impression of the candidates they came in with,” said LPL Financial Chief Market Strategist Ryan Detrick. “We expect markets will likely take a similar view.”

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How Stocks Do Around The First Debate

The first presidential debate is tonight, September 29, with millions of people expected to tune in to see how each candidate handles the pressure. With tensions heightened amid an election that may be much closer than the polls currently suggest, any potential mistake could be magnified exponentially.

Wednesday we’ll summarize our takeaways from the event, but today we’ll take a closer look at how stocks historically have performed around a first presidential debate.

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How Corporate Bond Spreads Respond to Equity Market Volatility

An old Wall Street adage says bond markets are smarter than equity markets, so when stocks encounter volatility, investors often look to the bond market for clues about the potential severity of equity market weakness.

The option-adjusted spread (OAS), a key data point, adjusts a bond’s yield for any unique features of the bond in an effort to make various bonds more comparable to each other. Since US Treasury bonds are generally considered safe-haven assets, the OAS of corporate bonds as a group is often based on a comparison to Treasury yields to determine bond investors’ perception of credit risk. The OAS reflects the additional yield investors may require to compensate for the specific risks in corporate bonds.

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Historic August Opens Door To Worst Month Of The Year

What a month August has been so far, with the S&P 500 Index up more than 7%, for the best August since 1984. Not to be outdone, this is the first time in history August saw two separate 6-day (or more) win streaks. Last, with one day to go, the S&P 500 has gained 16 days so far this month, for the most since 16 in April 2019. Meanwhile, it is the most up days for any August since 2003.

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LPL Market Signals: What May Happen If Biden Wins?

This week in the LPL Market Signals podcast, LPL Financial’s Chief Market Strategist Ryan Detrick and Equity Strategist Jeff Buchbinder discuss the impacts of a potential Joe Biden victory. “Of course tensions are high as we head closer to the election, but don’t forget that stocks tend to do just fine, regardless of who is in the White House, as long as the economy is firm,” according to Ryan. “With many parts of the economic data showing continued improvement, there’s a good shot the economy will be on the upswing as we head into 2021.”

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Which Bull Will It Be?

The incredible rally off the March 23 bear market bottom continues, with the S&P 500 Index up more than 50% from those fateful lows. It feels like a lifetime since the longest bull market ever ended. Remember though, although the recent bull market was the longest, it wasn’t the greatest, as the 1990s bull gained more on a percentage basis.

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The Worst Years for Treasuries Don’t Look Like This…Except One

The 10-year Treasury yield is historically low, so low that it could climb a full 1% before the end of the year and still be the lowest year-end yield on record, with room to spare. Historically low rates come with a genuine concern that they can reverse and climb higher, which could be painful for Treasury investors. The good news: As shown in LPL’s chart of the day, four out of five of the worst years for estimated 10-year Treasury returns have been mid- to late cycle, which is not the stage that we’re in now.

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