Investors Flock To Tech As Odds Of A Blue Wave Decline

Commenting on the decline of the odds of a blue wave and today’s trading, Gorilla Trades strategist Ken Berman said:

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Q3 2020 hedge fund letters, conferences and more

The Odds Of A “Blue Wave” Decline Significantly

The major indices are all trading significantly higher at midday following a wild election night in financial markets. While we still can’t be sure who will take the White House and the Senate, the most likely scenario is that the Democrats retain their House majority, the Republicans retain keep the Senate, and Joe Biden takes the presidency. Investors flocked into the tech sector, as the odds of a “blue wave” declined significantly, mitigating regulatory risks for the likes of Google parent Alphabet (GOOG, +6.6%), Facebook (FB, +7.5%), and Amazon (AMZN, 5.8%), which have been enjoying massive inflows this morning.

Data suggests quant hedge funds are having a lousy 2020, especially compared to traditional stock pickers. According to Bank of America, for the year to the end of September, the average quant US equity mutual fund was up just 3.3% compared to 8.3% for the average stock picker. Other research suggests an even worse performance. Read More

In economic news, the ISM services PMI slightly missed expectations with a reading of 56.6, which is still pointing to healthy growth in the crucial sector in the face of the resurgence of the virus. The ADP payrolls number missed expectations by a wide margin following last month’s strong reading, and with no new stimulus bill in sight, Friday’s government jobs report will be crucial ahead of the holiday season. Crude oil inventories fell by much more-than-expected this week, boosting the energy sector in the face of the pressure on the key cyclical sectors.

Market Wrap

Dow: 28,130, + 649 or 2.4%

S&P 500: 3,466 + 97 or 2.9%

Nasdaq: 11,609, + 449 or 4.0%

Russell 2000: 1,618, + 3 or 0.2%

Market breadth has been relatively weak this morning, as small-caps have been severely lagging the broader market, with the number of advancing issues roughly matching decliners’ on the NYSE at midday. 9 stocks hit new 52-week lows on the NYSE and the Nasdaq, while 106 stocks hit new 52-week highs. The major indices have been trading above their daily VWAPs (Volume-Weighted Average Price) for most of the morning session, pointing to intraday buying pressure. The divergence between the key sectors has been extreme in early trading, as tech, communication services, and healthcare stocks were buoyed by the likely election outcome, but cyclical issues have been showing weakness due to the uncertainty regarding the fiscal policies of the coming year. Stay tuned!

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