Forget Politics: These Are the 2 Biggest Questions the Market Has to Answer...

Do you have the STAMINA to survive election season?

The big lie making the rounds yesterday was that nervous investors were selling stocks in anticipation of the first presidential debate.

Markets wandered lower all day—that much is true. It was a mixed bag of dung across the globe. Oil jumped. Europe sank on the back of a crashing Deutsche Bank. Stateside, the Dow dropped triple-digits. Overall, choppy September trading persists.

There’s no way around it: investors are distracted by the election. The situation isn’t going to get better anytime soon. The media will probably translate every market tick to some miniscule shift in poll numbers until we can put this entire mess behind us in November.

Grab your earplugs. They’re cranking the noise machine up to eleven…


The media hyped the first debate more than a major sporting event. And it had the ratings to prove it…

“The total audience, network executives and political strategists say, could be as high as 100 million viewers — Super Bowl territory,” The New York Times noted. “That would surpass the 80 million who watched Jimmy Carter and Ronald Reagan in 1980, the record for a presidential debate, and rank among television benchmarks like the finales of ‘MASH’ and ‘Cheers.’”

We here at Rude HQ have a tough time stomaching politics. I told myself yesterday morning I would rather swallow a pint glass full of razor blades than watch the godforsaken presidential debate. But curiosity got the better of me and I did manage to sit through most of it.

Thanks to all the rambling platitudes I found it difficult to tell who “won”—but the betting markets suggest Clinton gets the bump.


The markets “liked” her performance. Futures spiked during the debate. And even though we’re off the highs, the major averages are looking to open in the green today.

Political gossip aside, we’re going to concentrate on two major questions this week:

1. Have investors become too bearish?

The economy has run out of steam. Central banks are out of options. Stocks have nowhere to go but down.

These are the majority of the opinions you’ll read about in the financial press right now. Even individual investors are becoming more bearish.

“The latest weekly online survey of members in the American Association of Individual Investors showed 38% of respondents anticipate lower stock prices the next six months, versus 36% a week earlier and 28% the one prior,” The Wall Street Journal reports. “Meanwhile, those predicting growth fell to 25% from 28%, a three-month low.”

Remember, the stock market loves to punish the majority opinion when it becomes just a bit too widespread. That could be what we’re experiencing right now…

2. How will the “comeback kids” react to choppy markets?

Over the past several weeks, we’ve concentrated our trading ideas around the market’s “comeback kids”—small-caps, biotechs, recent IPOs, tech stocks, and even Chinese ADRs.

These are the groups we’ll monitor closely to give us clues about the market’s direction. If we continue to see strength in these abandoned stocks, we’ll know investors’ risk appetites haven’t been chewed to bits by political discourse.

For now, do yourself a favor and tune out the political noise machine.

Let the markets do the talking instead…


Greg Guenthner
for The Daily Reckoning

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