Last night, it was announced that the President and First Lady tested positive for Covid-19. We aren’t sure how symptomatic they are thus far but of course it adds uncertainty to an already tense time. Hopefully they, and all other afflicted by the virus, will be okay! Congress continues to negotiate a potential stimulus deal. I wasn’t very optimistic about them coming to an agreement a few weeks ago, but now I think there is a decent chance.
From what I’ve heard, they are pretty close on the numbers, but the language is an issue that still needs to be worked out. From a strategic standpoint, the biggest difference in opinion is on state financial aid, with Democrats wanting more and Republicans wanting less. With Democrats leading most of the polling thus far, it would make sense to pass a bill as big as the Republicans will allow, and then they can add to it after the election anyways. We are talking big numbers anyways in the hundreds of billions for states. If Republicans were to do better than expected in November, the enthusiasm for state aid would likely be much more muted. Most importantly, that would get financial assistance to those that need it most, which is where there is bipartisan agreement. With that said, it is politics so anything can happen. Always keep in mind that often what is said in public is not what is going on in private. There is a narrative that is pushed, so I actually think a deal is closer than most believe but I wouldn’t bank on it either way.
In about three weeks, earnings season will start for the 3rd quarter of 2020. I think the quarter is going to have been a lot better than expected. Banks in particular had huge investment banking quarters in terms of revenues, far in excess of previous 3rd quarters. Automotive sales have been really good and the unemployment rate dipped to 7.9% in the numbers today, which is far better than anticipated. The labor force participation rate declined though, which is probably not that surprising given with so many children doing remote learning, parents can’t pursue employment with the same veracity as in a more normal environment.
There is a lot of noise and a lot going on. Keep in mind we are invested in dollars trading for 50 cents. These companies can function fine even in this type of chaotic environment. Volatility is high, but as we get closer to expiration on our January 2021 options, those positions should start to really help us. Whether stimulus comes now or after the election, it is coming and it will be huge. I think if it comes within the next week, it could be a game changer. If more economies fully reopen as we are seeing in Florida, Tennessee, and now AZ seems to be about there, that will have a major impact. Remember, that 7.9% unemployment rate is occurring with CA and NY still heavily restricted. For instance Disney announced major layoffs just this week. The reopening added huge momentum, but stimulus would certainly help to bridge that gap.