This is funny in terms of stock-market “narratives” during these crazy times.
By Wolf Richter for WOLF STREET.
At first, long ago, the narrative was that a Trump victory would boost stocks. And then when this became more uncertain, the narrative was that a Biden victory would also boost stocks, and that a “Blue Wave” would boost stocks hugely because it would trigger the mother of all stimulus packages, which would spread trillions of dollars directly and indirectly to these companies, which would be good for stocks.
And so it was that a victory by either presidential candidate would boost stocks, and that only a disputed election outcome with a long drawn-out legal battle or a split government would derail stocks.
And now, that Trump is already disputing the still unknown election outcome and is threatening a long-drawn-out legal battle if he loses – with Biden leading in electoral votes but millions of mail-in ballots left to be counted – even the threat of a disputed election and a long-drawn-out mess is now boosting stocks.
And even funnier: The only remaining outcome that would not boost stocks, and by some measures would be the worst possible outcome during these times – namely a split government, with the Senate remaining under Republican control and Biden in the White House, and therefore no stimulus package – is suddenly a distinct possibility. But it now too is seen as boosting stocks because it would mean, according to the newly fashioned narrative, that the absence of a Blue Wave would be good for Big Tech because it would be less threatened by antitrust pressures.
These narratives are funny. They change and adapt constantly, like a weather vane. Major investment banks come out with reports to create and support these narratives, and adjust them as probabilities of outcomes change, with the purpose being that whatever happens, and no matter how it happens, and regardless of why or when it happens, it has to boost stocks, according to the narratives.
At the moment, all stock market indexes are shooting higher, with the Nasdaq up 4% and the S&P 500 index up 3%, after stock futures went through a roller-coaster session overnight.
The Russell 2000 had been in the red this morning, despite the other indices spiking, on fears that the mother of all stimulus packages would not be happening. The narrative was that these smaller stocks would benefit most from a stimulus package. And now, that narrative changed too, and the Russell 2000 is now spiking higher.
But in a huge contrary move, the 10-year Treasury yield is now down 16 basis points, from the spike to 0.93% last night to 0.77% now, with prices of these Treasury securities jumping, which would normally indicate a flight to safety, in direct disagreement with stocks, or whatever.
The dollar jumped overnight against a basket of other currencies, in a flight-to-safety trade, with the DXY Dollar Index going over 94 overnight, but then this trade started unwinding, with the DXY currently back at 93.48, whatever the narrative of the moment may be.
There are always narratives around the markets – the stories of why asset prices go one way or the other if certain things happen. But I cannot remember these narratives having been this silly and contradictory and all over the place simultaneously, a smorgasbord of narratives practically that change constantly but in effect take any and all outcomes, even messy outcomes, and fashion them into a positive for stocks.
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