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Over the past month, Wall Street’s strategists have engaged in a comprehensive campaign to “ease” client fears that a Biden administration and/or a “Blue Sweep” would be just as good for stocks if not better than a continuation of the status quo, thus avoiding a selloff should Nov 3 prove to be a rout for Republicans, to wit:

• Higher corporate taxes under Biden? No worries, it will be offset by up to $7 trillion in fiscal stimulus under a joint Democratic congress.
• A doubling of capital gains taxes? No worries, it only will affect the super-rich and while it may hit stocks in late 2021, the dip will be quickly bought as, after all, stocks always go up, with Goldman predicting that  “regardless of the election outcome, we expect roughly 10% upside to the S&P 500 by the middle of next year.”
• Higher bond yields under a Democratic sweep? No worries, after all we need higher yields to telegraph that the economy is improving and reflation is returning.

A recent Bank of America analysis laid out the 4 possible election outcomes, which were more dependent on the composition of the Senate than who is president (the worst scenarios for markets were those where “president Biden” faced a Republican Senate and vice versa for Trump):

The bottom line however was clear: the best possible outcome for markets is a Blue Sweep.

However, now that said Blue Sweep scenario has been fully priced in a new risk has emerged: what is polls are wrong – again – and we get either a Trump victory or a mixed Congress? Would that mean that the consensus trade would fall apart, leading to sharp stock market losses as the reflation trade is puked into an illiquid market?

Judging by the latest report from JPMorgan head of global equity strategy, Dubravko Lakos-Bujas – published over the weekend, Wall Street is about to pull a U-turn and begin pre-emptive damage control should Trump win.

Indeed, in a dramatic reversal from the recent narrative which present a “Blue Sweep” as the most beneficial outcome from the election, the JPMorgan strategist writes that he maintains a probability weighted S&P 500 price target of 3,600 for year-end, and sees “an orderly Trump victory as the most favorable outcome for equities (upside to ~3,900).”

Just as amusing, Lakos-Bujas says that he also views gridlock outcomes “as a net positive with market volatility likely subsiding and driving mechanical re-leveraging within equities.”

But the most entertaining spin is that a “Blue Sweep” scenario – which as we noted last night is suddenly looking unlikely with PredictIt odds tumbling, “is expected to be mostly neutral in the short term as it would likely be accompanied by some immediate positive catalysts (i.e. larger fiscal stimulus / infrastructure) but also negative catalysts (i.e. rising corporate taxes).”

But… but… Wall Street spent so much time explaining just why this scenario is the best possible one, since the “positive catalysts” would greatly outweigh the negative ones. Or is Wall Street only starting to hedge in case the priced-in “sweep” does not happen, and traders need a fall back “narrative cushion” in case of a Trump win and/or Congress gridlock.

Finally, in response to the question of why JPMorgan is suddenly getting cold feet, the Croatian strategist writes that “last week we analyzed voter registration data and their possible implication for State outcomes, while this week we analyzed Twitter sentiment on US election and compared it with the traditional polling data – they all point to a tightening race.” Which of course means that JPM needs to prepare a narrative for why a Biden victory is bullish but a Trump victory is even more bullish: just in case anyone gets the crazy idea of selling on Nov 4.

* * *

While we wait to see if other banks now jump on this “pro-Trump” bandwagon, here is JPM’s update of what market signals it is watching to determine the outcome of the election:

We find that Energy, Financials and Healthcare sectors could likely see the most outsized moves as they have been explicitly referenced by each candidate on the campaign trail. The Biden basket (JPAMBDEN ) is outperforming the Trump basket (JPAMTRMP ) by 66%, see Fig 1.

At the individual theme level, the performance is even more bifurcated. For example, Alternative Energy / Green Tech stocks (key beneficiaries under Biden basket) are outperforming Traditional Energy / Fossil Fuels (beneficiaries under Trump basket) by ~84% since June, see Figure 2.

The Biden basket also happens to be more  aligned with Momentum, ESG and COVID Beneficiaries, while the Trump basket aligns with Value and COVID Recovery / Epicenter stocks. Given the large divergence between these two baskets (i.e. similar to momentum/value), coupled with our expectation that COVID-19 headline risk likely declines post-election, we see an increasingly compelling case for Value in the coming period.

Deep Value, namely Energy and Financials, would likely be key beneficiaries of an ‘orderly’ Trump victory and could see a large short squeeze. Under a Biden scenario we could also see profit taking from high momentum stocks, especially as investors start to price in risk of higher capital gains tax. This could also trigger a rotation within Growth from US-domiciled to non-US domiciled long duration / secular growth equities which could benefit from (1) low-to-no sensitivity to potential corporate tax hikes; and (2) better insulated from capital gains tax increase due to a more diversified investor base.

We are introducing COVID-19 Vaccine Tactical Short Candidates. This is a list of stocks that are in the upper echelon of Momentum and have crowded positioning, that could see the second derivative of their profit growth decrease as consumer / corporate activity normalizes. These screens should be viewed as tactical opportunity to express a view on the catalyst rather than a fundamental call on these companies.

By Michael Every of Rabobank

The markets have started a new week of trading in risk off mode (when this note was heading to press) amid fading expectations that the US Congress will pass another fiscal package. With just 8 days left until the presidential election, both sides may not have a sufficient incentive to reach an agreement. Even if there is no deal in the coming days, a fiscal stimulus is still likely to be agreed after the election to support businesses and households as the US is struggling to contain the coronavirus pandemic. In fact, President Trump’s chief of staff openly admitted that the US is “not going to control” the pandemic and instead will focus on “proper mitigation factors”, such as vaccines and treatments. Former Vice President Biden strongly criticized the Trump administration saying that “they’ve given up on their basic duty to protect the American people.” The US recorded a record daily number of new cases of 85,000.

Meanwhile, the WHO has warned that some countries in the northern hemisphere are facing a “dangerous moment.” This assessment applies to a number of EU countries, where political leaders are trying to protect their citizens by using various restrictions to flatten the coronavirus curve. Spain declared a state of emergency and imposed a curfew. Italy has tightened restrictions as well after new infections rose to a record high of 21,273 on Sunday. France reported record new infections for the fourth consecutive day. Last week the French government announced an extension of the curfew to 54 départements, covering some 2/3 of the country.

While these restrictions are not yet as tight as in spring, the latest set of data has already revealed that the pace of economic recovery in services has started to lose momentum. The Eurozone services PMI plunged to 46.2 from 48 on the back of various social distancing restrictions imposed across the continent to regain control over the coronavirus pandemic. Meanwhile, the manufacturing PMI edged higher from 53.7 to 54.4 in October driven by demand from abroad, particularly Asia, where countries seem to have adapted to the virus and have learnt to live with it. Looking at specific countries in the Eurozone, France’s manufacturing PMI slipped 0.2 points to 51, whilst the services PMI fell further below the boom-bust mark, to 46.5 from 47.5 in September. Commenting on the data Elwin de Groot said that this development is not a surprise of course now that France and many other countries are once again installing measures to contain/slow down the spread of the virus.

In Germany a similar picture is playing out with manufacturing activity actually recovering further in October. This appears to be related to stronger overseas demand – such as from China – and the recovering auto sector. However, the services PMI fell below the 50-mark (to 48.9 from 50.6). Elwin argues that this is only ‘the beginning’ and weakness in activity is likely to extend into the final months of this year. Despite the ‘technical rebound’ since May (which should show up as a strong growth number for Q3), a negative growth number for Q4 (and as such a double dip) is becoming increasingly likely. The key risk now is that the negative demand-shock (which was effectively attenuated by the government support measures in the first wave) will now gain momentum, in the form of a rising number of defaults among smaller businesses and rising unemployment, according to Elwin. This is the constellation in which the ECB meeting will take place on Thursday.

In the UK (still technically part of the EU) the pace of growth slowed to the weakest since the post-lockdown recovery started. The recovery in domestic demand is stalling as the labour market deteriorates and sentiment sours, Stefan Koopman commented. It is also worth noting that GfK consumer sentiment fell by the most since the start of March’s lockdown. On a more positive note, the Brexit rumour mill has slowed markedly over the past couple of days. This typically means that, behind closed doors, there’s some rational thinking and talking going on. At the same time, there’s good reason for prime minister Johnson to await the outcome of the US elections, so we wouldn’t get our hopes up about a deal already being announced this week.

Elsewhere in the EU, the Czech government has imposed a partial lockdown of the economy to regain control over the raging coronavirus. Speaking this morning PM Babis said that more virus curbs could be announced today. In Poland, the government may allegedly opt for a full-lockdown if the pace of infections does not slow down by the end of this week. While the hospitality sector will be among the worst impacted due to severe restrictions across the CEE region, rising concerns about health may weigh on private consumption and spill over to other sectors. A bleak winter is ahead of the CEE countries. Instead of a V-shaped recovery from the sharp contraction in Q2, the CEEs are moving into a W-shaped or even a U-shaped recovery depending on the damage the second wave of the pandemic will cause to confidence among households and corporates. We prefer to focus on higher levels in EUR/CEEs in the coming weeks as outlined most recently here.

The Turkish lira remains the worst performing EM currency so far this month. USD/TRY has reached another milestone breaching the 8.00 level this morning. Over the weekend President Erdogan reportedly dared the US to impose economic sanctions on Turkey. “Whatever your sanctions are, don’t hesitate to apply them”, the Turkish president reportedly said. “You told us to send back the S-400s. We are not a tribal state, we are Turkey.” The market is seriously concerned that if former VP Biden wins on November 3, the US will penalise Turkey for purchasing the Russian S-400 air defense system. It is also worth recalling that the CBRT left the market deeply disappointed by keeping the 1-week repo rate unchanged last week. We discussed this in details here, but in short the CBRT may have miscalculated market’s tolerance for conducting an unorthodox policy based on using an interest corridor to manage liquidity. The CBRT may seriously consider an emergency rate hike to stem the lira’s rout, especially if on this occasion opinion polls prove to be correct and Biden wins.

Despite the surprise surge to multi-year highs in existing home sales, new home sales were expected to rise only a modest 1.4% MoM in September (vs +4.8% MoM in August) but things were notably worse with new home sales tumbling 3.5% in September (and August’s bounce revised down to +3.0%)…

Source: Bloomberg

This move and revision takes SAAR back below 1 million (to 959k in Sept vs 1.025mm exp)…

Source: Bloomberg

The median price ticked up from $322.4K to $326.8K…

But the fact that 19% of new homes sold in Sept. cost more than $500,000, up from 15% prior month, sent the mean price of home to a new record high…

Source: Bloomberg

Perhaps notably, inventory improved modestly with months’ supply at 3.6 in Sept. compared to 3.4 prior month.

Summary:

• US sees 7-day average for cases hit new record
• Hospitals across US near capacity
• Utah hospitals ask Gov to approve new triage plan
• French official warns France seeing 100k new cases per day
• Malaysia extends lockdown
• Hong Kong focuses COVID efforts on public transit
• UK approves new rapid test
• AstraZeneca trial data shows vaccine effective on elderly

* * *

New COVID-19 cases declined on Sunday following the Friday-Saturday peak both in the US, and globally. With the US adding roughly 61,000 new cases (according to JHU), bringing the US total to 8,637,108. Globally, the world broke above 43 million confirmed COVID-19 cases, with roughly 377,000 new cases reported yesterday alone.

However, the US average of new COVID-19 cases is now at its highest point since the start of the pandemic, as the US added more than 480,000 new cases (481,372 per JHU) after Friday and Saturday both saw new cases top 80k.

Currently, there are more than 41,000 COVID patients hospitalized in the United States, a 40% rise in the past month, and unlike during the first wave, which hammered urban areas, the second wave is spreading out to more smaller towns with fewer resources, which can translate to less effective care. In Kansas City earlier this month, ambulances were reportedly turned away from hospitals that ran out of room. Field hospitals are currently opening in Salt Lake City and Milwaukee.

In Utah, hospitals are preparing to start rationing care as patients flood its ICUs. That’s reportedly the prediction of a top hospital association official, who has reportedly conveyed his warning to Utah Gov. Gary Herbert. The new criteria, which would require the state’s approval, creates a new triage program for doctors to decide who can stay in the ICU, and who will be sent back to a regular bed, per the Salt Lake Tribune.

Perhaps the biggest news overnight was the first trickle of Phase 3 trial data from AstraZeneca, a leak that seemed suspiciously well-timed, coming just days after US regulators finally gave the vaccine being developing in partnership with Oxford the green light to restart its US trials. The report should be taken with a large grain of salt; none of this is tantamount to conclusive evidence that the candidate will provide lasting immunity.

In Asia, news broke on Sunday that China had discovered its largest outbreak in months in the far-flung province of Xinjiang. One day later, authorities are reporting another 26 asymptomatic cases.

China’s Xinjiang province reported 26 new asymptomatic coronavirus infections between 1600 Sunday and 1600 Monday in Kashgar prefecture, China Central Television reported.

In other news, SCMP reports that Malaysia has just extended its partial lockdown in Kuala Lumpur, its capital city, as well as the surrounding state of Selangor, from two weeks to four.

Jean-Francois Delfraissy, the chair of the scientific team advising French President Emmanuel Macron, warned that the country is probably seeing roughly 100,000 new cases a day as the coronavirus pandemic steers the nation into a “very difficult, or even critical situation.” He added that “this second wave will definitely be stronger than the first.” For context, France reported its 4th consecutive daily record of new cases on Sunday.

In the UK, pharmacy chain Boots is set to launch a 12-minute COVID-19 swab test in some of its stores, while it has begun to offer private pre-flight testing for those traveling abroad.

Here’s some more COVID-19 news from Monday morning and overnight:

South Korea reported an uptick in new coronavirus cases despite a lower number of tests, over the weekend, as a cluster of infections in nursing homes in the greater Seoul area emerged. The country added 119 more cases, increasing the total caseload to 25,955, according to the Korea Disease Control and Prevention Agency (Source: FT).

Hong Kong will focus its testing efforts on taxi and bus drivers over the next fortnight, as it seeks to control the coronavirus pandemic (Source: FT).

WHO director general Dr. Tedros said some countries in the northern hemisphere are facing a “dangerous moment” after US infections hit a record for the second day (Newswires).

Australia’s state of Victoria, the country’s new coronavirus hot spot, reports zero cases for the first time since June (Source: Reuters).

The latest France-Turkey fast deteriorating diplomatic spat has gone from bad to worse, after on Saturday France recalled its ambassador following President Erdogan’s insulting remarks targeting Macron, which also riled EU leaders. But on Sunday Erdogan repeated the words, “Macron needs to get himself checked out” – suggesting the French leader has mental problems due to remarks which blamed “Islamist terrorism” in the wake of the horrific beheading of a middle school teacher on October 16 by a young Chechen refugee angry the teacher had shown cartoon images of Muhammad. 

On Monday Erdogan escalated dramatically, calling for a Turkish boycott of all French goods over what he called France’s ‘anti-Islamic’ stance towards Muslims and the Turkish people. The call for a boycott of France plunged the lira to a new all time low of 8.0750, while Turkish stocks sink. 

Erdogan said during a televised speech in Ankara:

“As it has been said in France, ‘don’t buy Turkish-labelled goods’, I call on my people here. Never give credit to French-labelled goods, don’t buy them.”

This could create a broader ripple effect and new tensions for France among a number of Middle East countries as “calls for boycott also erupted over the Middle East, with some outlets in Kuwait, Jordan and Qatar removing made-in-France items from their stalls, and protests erupting in several countries,” according to Israeli media.

At the same time Macron has emphasized a freedom of speech message over the teacher Samuel Paty’s slaying, vowing that the French “not give up our cartoons”.

Erdogan’s fiery speech in reaction further emphasized Macron’s supposed ‘anti-Islamic’ stance.

Erdoğan is whipping up Muslim animosity against Macron | Ahval ➖ https://t.co/Yft7HXOqow

— Ahval (@ahval_en) October 26, 2020

The whole episode has brought back with ferocity the national debate over free speech versus political correctness and “sensitivity” to the beliefs of Islamic hardliners, as especially seen with some recent public displays in France inspired of the January 7, 2015 Charlie Hebdo massacre.

Statements are now coming in from other leaders of Muslim majority countries, which could be a bad sign for France:

Meanwhile Pakistani PM Imran Khan accused him of ‘attacking Islam’ while summoning the French ambassador to explain himself.  

Boycotts of French goods are also underway in supermarkets in Qatar and Kuwait, with further calls to spurn French products in Jordan and other states.

On Monday, the head of France’s MEDEF employers’ federation said the boycott, which he described as ‘foolishness’, was clearly bad news for companies already hard hit by the coronavirus pandemic.

However, the MEDEF chief Geoffroy Roux de Bezieux still said: “But there is no question of giving in to blackmail,” and he added that “It is a question of sticking to our republican values.”

The algops are large and in charge this morning, as they ramp Nasdaq back to overnight highs…

Sorry but WTF!!!

Authored by Mike Shedlock via MishTalk,

Colorado is getting some help from the weather. California is not as lucky.

Snow Blankets North-Central

Accuweather reports Record-Setting Cold Over North-Central US.

It’s beginning to look a lot like winter across parts of the north-central United States as a snowstorm targets millions of Americans. The wintry mix is spreading to areas much farther south, including some that typically don’t pick up snow until much later in the season.

“Cold air will continue to steadily march southward through the early part of the week with many areas seeing records challenged once again,” AccuWeather Meteorologist Maxwell Gawryla said. “As significantly below-average temperatures remain in place, many more records will likely be broken through the first half of the week.”

With this storm coming on the heels of recent winterlike weather that shattered a 115-year-old snowfall record in the Twin Cities, residents across the Plains and Upper Midwest may check their calendars twice to make sure it’s still October. 

With this storm coming on the heels of recent winterlike weather that shattered a 115-year-old snowfall record in the Twin Cities, residents across the Plains and Upper Midwest may check their calendars twice to make sure it’s still October.

Billings, Montana, fell to 16 degrees F on Saturday morning, breaking the previous record of 19 degrees for that day set in 1976. On Friday, Idaho Fall, Idaho, fell to 13 with a previous record of 16 set in 1980 and Casper, Wyoming, broke their previous daily record of 11 in 1984 with -5.

Spokane, Washington, shattered its snowfall record for that day on Saturday with nearly 8 inches of snow, while the previous record was 0.2 inches in 1957. 

Portions of the drought-stricken Southwest may also get their first bouts of precipitation in weeks as the storm continues to dive southward by next Monday. Residents of Flagstaff, Arizona, could even see snowflakes fly early next week.

Snow Aids Colorado Firefighters But Brings News Challenges

In Colorado, Fire Management Teams Get Snow, Colds Temps They Were Hoping For, But That Brings Its Own Challenges.

The Cameron Peak fire is the first to see snowfall this morning, with an estimated three-five inches in the northernmost parts of the blaze, according to the incident management team.

“Lighter amounts as you go further to the South, the Southern portions of the fire, generally around two to four inches, so far,” said incident meteorologist Dan Byrd in a Facebook update. “Temperatures overnight are going to be very cold across the entire fire. Most of the fire will see conditions below zero tonight, probably around five to seven below zero, and then single-digit temperatures in the lower elevation.”

As of this morning, temperatures in the East Troublesome Fire area, which has grown to 192,560 acres, were still in the low 40s, Meteorologist Byrd said. The fire made a run towards Estes Park on Saturday. By late in the day it had burned into the Moraine Park area of Rocky Mountain National Park, but it had not reached Bear Lake Road.

The fires could see between 10-18 inches of snow in total by Monday. There is expected to be “very limited fire behavior” over the next 24 hours for all four fires thanks to the snowstorm, according to the Incident Information System.

“We’ll take advantage of the weather while we can,” East Troublesome Fire incident commander Noel Livingston said, adding that planes were not able to fly and make bucket drops due to wind conditions on Saturday. He anticipated being able to do more today. “I anticipate a productive day.”

What About California?

That’s the mostly good news about Colorado. 

California, unfortunately, is another matter.

The Fresno Bee reports Creek Fire updates, Oct. 25: ‘Extreme fire activity is possible,’ power outages planned

Critical fire weather conditions are expected in the Creek Fire region and beyond Sunday evening through Tuesday evening due to strong easterly winds and low humidity, prompting a red flag warning from the National Weather Service.  

The warning is in effect from 5 p.m. Sunday to 5 p.m. Tuesday and covers the central and southern Sierra Nevada and foothills. 

“Extreme fire activity is possible,” Creek Fire officials said, “and if there is a new start or the fire escapes containment lines you can expect rapid rates of spread.”

Red Flag Warnings

Red Flag Warning now in effect for the Sierra Nevada foothills and mountains as well as Kern County foothills, mountains, and desert areas from Sunday evening until Tuesday evening. This replaces the Fire Weather Watch that was in place. More info here: https://t.co/2m2ztrJy43 pic.twitter.com/uUkFto5KN3

— NWS Hanford (@NWSHanford) October 24, 2020

WEATHER: A major offshore wind event is coming to California and extreme southern Oregon. Red flag warnings and fire weather alerts have been posted for large parts of the state including, San Francisco and Los Angeles. https://t.co/30ESKg5scF

— ABC News (@ABC) October 24, 2020

The snow is helping Colorado and Idaho but California only got the winds.