Renewed talks of stimulus gave Wall Street high hopes and pushed the indexes close to their 52-week highs. The next test will be when the Big 3 indexes finish the comeback to their early September highs. If bulls can move past their previous highs, then it might be off to the races. If not, then a return trip to their respective 50-day moving averages is highly possible.
2019 was the last time the NASDAQ made a similar move, got crushed lower, recovered from the strong downdraft, followed by a “V” shaped profit taking and rebound. Flat to down trading followed the “V” for the next three-months before the next dominant trend took charge.
We believe the post “V” cycle could be shorter this time with the election just three-weeks away, although most prognosticators believe there won’t be a clear winner on election night and the results could be contested in court for weeks.
The last time we saw something similar was in 2000 in the George W. Bush versus Al Gore election. The NASDAQ fell, finish eating or drinking before reading on… more than 20%. The NASDAQ dropped from roughly 3,300 to a little more than 2,500 from the election to the start of December. It rose a bit in the early part of December and then bears reclaimed leadership following the Supreme Court’s final decision on December 12, 2000.
The indexes didn’t recover for good until April 2001. Investors might start to prepare for a 2000 replay by taking some profits on short-term trades, moving some money to cash, and possibly adding inverse index ETFs to your portfolio as quasi-insurance in case stock prices get whacked like they did 20-years ago.
We’ve been down this path before, ETFMG Alternative Harvest ETF (MJ) pops and then bears play whack-a-mole and smack the marijuana-based ETF back into the dirt. Weed has not performed well in 2020. In fact, despite being #1 on our performance leaderboard last week, at $11.88 MJ still sits much closer to its 52-week low of $8.81 than its high of $20.80.
However, despite knowing the pitfalls of even thinking, let alone uttering, “it’s different this time”, it could be different this time. During the Vice-Presidential debate, Democratic nominee Kamala Harris said the Biden administration would decriminalize marijuana at the federal level. Many might have missed the comment in crosstalk between Harris, Vice President Pence, and the moderator, but Wall Street certainly heard is as the ETF is up roughly 8.5% on outsized volume since.
Ahh but campaign promises don’t always come to fruition. Invest cautiously prior to the election and, perhaps, more confidently if Biden and Harris come out on top.
Normally, we’d put a stock from ETFMG Alternative Harvest ETF (MJ) in this spot. Quite frankly, we were prepared to do so before looking at the potential parallels between 2000 and 2020. A contested Presidential election is the height of uncertainty and we’ve heard the cliché’ way too many times, the market doesn’t like uncertainty.
Reflecting on 2020, it’s next to impossible to believe the election will go smoothly and Trump or Biden will go quietly into the post-election night. If not, we don’t believe it will be different this time and Wall Street’s reaction could be similar to 2000.
The last time the NASDAQ made a similar move, it flattened out before taking the next step.