With the Democratic National Convention having concluded last week, today the Republicans have their turn.
Already, markets are getting giddy with all the electioneering we’re about to see.
The Business Media, of course, can’t stop talking about how overbought the market is. They’ll cite statistics about the record low number of shorts, or the low volume at all-time highs.
These are the same people who, in 2009-2011, were questioning the markets going up despite the economy stalling. And they are now questioning this bull market for similar reasons.
But just as back then, the market is going up because of the trillions of dollars of stimulus being pumped into it (and this time, it’s even bigger than during the Great Recession).
And that push up in stock prices is going to continue for the time being, especially this week.
Because the Reality Gap is this: President Trump is down significantly in the polls, and more than any other president in recent history, Trump has made the performance of the stock market a major measure of his presidency.
So he’ll do his very best to keep markets moving up until the election.
We saw the first steps on this over the weekend, as the president touted the expanded Emergency Use Authorization for using blood plasma of people who have recovered from Covid-19 to treat those struggling with the disease.
Leaks also suggested that Trump is looking to release the British Covid-19 vaccine, being developed jointly by AstraZeneca plc (AZN) and University of Oxford, before the election on November 4.
That would mean it wouldn’t have time to pass full safety and efficacy reviews by the Food and Drug Administration.
Stock markets were up this morning on these two tidbits, especially casino, cruise, and airline stocks. But there’s much more coming this week as the Republican National Convention kicks off.
It promises to be a very stock market-friendly show as the president and his party try to drum up stocks… and support.
Now, I don’t know for sure what tricks they have up their sleeves that could move markets as much as the vaccine and plasma news did this morning. But it’s not too hard to imagine that the president could use this week’s convention to promise additional tax breaks, more stimulus through executive orders, and so on.
Whatever it is, we can be sure it’ll be aimed at keeping the markets up at least during the convention.
This will probably be the most market-friendly convention ever held in America.
But even as we get a stock-friendly show to remember, there are two groups of earnings reports this week to keep an eye on.
First, we’re getting reports from that most rare breed among stocks: brick-and-mortar retailers that have been successful during Covid-19. Best Buy Co. Inc. (BBY) reports tomorrow before open, while Dollar General Corp. (DG) reports on Thursday morning. Best Buy has defied all the naysayers this year, and has more than doubled since the March lows. Dollar General hasn’t quite doubled, but is outperforming its main competitor, Dollar Tree Inc. (DLTR), which now also owns Family Dollar.
Both Best Buy and Dollar General are now at all-time highs, and they’re likely to continue to climb. Dollar General’s earnings look to be positive. But there’s a chance that Best Buy is a sell-the-news moment, with anything short of stellar earnings proving to be a mild disappointment. If so, buy the dip, because Best Buy will continue to do well.
The second group of earnings to watch for is the cloud-based software-as-a-service human resources companies: customer relationship management phenom Salesforce.com Inc. (CRM) and human resources-centric Workday Inc. (WDAY). They report tomorrow and Thursday, respectively, and have both done very well since the March lows. Salesforce has reached new all-time-highs, though, while Workday dropped slower and has been slower to rise, as well. Buy any dips after earnings, because cloud-based software services are the future of the industry, especially as work from home becomes the norm.
Great trading, stay safe out there, and God bless you,
D.R. Barton, Jr.