by Jason Bodner

October 6, 2020

Big Money matters.

Chasing money dominates much of life. Love and having a purpose should be all we need, but the fact remains that love doesn’t pay bills. Only money does. So rich people fascinate us. Forbes magazine profiles the world’s richest people every year. What may surprise you, however, is that Forbes apparently once included criminals. Pablo Escobar made the Forbes’ list of international billionaires for seven years straight, from 1987 until 1993. In 1989, he was proclaimed the seventh-richest man in the world.

Both Pablo Escobar and Chapo Guzman Have Made Forbes Magazine

Here’s my question: Why are people fascinated by all the people who make big money, but when it comes to stocks, they would rather focus on the news that supposedly moves the stock price? Stock news focuses on the products, trends, and stories, while Big Money is conspicuously absent from the headlines.

You may know by now that Big Money is what I focus on. Years ago, after handling an order to buy more than $600 million worth of stock, I saw first-hand what Big Money can do. The stock I was buying had terrible fundamentals, but it went straight up (+70% in a month), because I was buying for a multi-billion-dollar money manager. That’s when I began looking at stocks through the lens of the Big Money players.

Especially in uncertain times like now, it’s vital to look at what Big Money is doing with their money.

I’ll warn you in advance of my conclusion: I am seeing some conflicting data these days:

Let’s start with buying and selling. Last week was a wild one for the external news. The first presidential debate was unconventional, to say the least. Regardless, buyers came in hard and fast. There was significant buying in Discretionary and Utilities stocks, while Tech, Industrials, Healthcare, and Materials stocks also saw decent buying. Notable pain points were in Communications and specifically Energy stocks, which continue to feel pressure from crude oil’s slide: In August, West Texas Crude was roughly $43 a barrel. On Friday, the price closed at $37.01 after a -4.3% daily slide and a -14% drop since August.

Map 1400 Big Money Stocks

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

What I found most interesting is that Friday looked set to be a day of destruction in stock prices. President Trump, the First Lady, and members of his staff tested positive for COVID-19. I wish them and anyone else affected by this illness a swift and full recovery, but Wall Street steeled itself for a bloody day. It’s intuitive to think that if a sitting president is diagnosed with this dangerous illness dominating our lives and hamstringing the economy, that stocks would take an ugly beating, but the damage wasn’t that bad:

Yahoooooo

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

The Dow was briefly positive intraday, and small cap stocks finished the day up +0.53% for a stunning intraday range of +3.09%! The S&P 500 fell less than -1%. Only the NASDAQ made investors queasy with a -2.22% drubbing. It’s important to note, however, that the NASDAQ’s close on Friday was only slightly lower than Tuesday’s close of 11,085.25 and +4.1% higher than September 23rd’s recent low.

So, it would appear then, that buyers are actually coming back, and what would seem to be a fragile market (if sellers controlled the helm) was surprisingly resilient against such dire news.

The conflict in the data, however, is that we are in the final month of an election cycle. I recently pointed out that Septembers are typically rough for markets, but particularly so during election years. And sure enough, for much of September, the sellers were in control: The S&P 500 fell -3.92% this September.

Now what about October? Buyers seem to be returning and it’s our last full month before the presidential election on Tuesday, November 3, only two business days into November, so what can we expect?

History suggests that last week’s strength might be short-lived since most recent Octobers, in general, are positive months, on average, but the most recent election-year Octobers are anything but:

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

October election years since 1990 average an S&P 500 return of -2.45%.

But instead of just looking at returns, let’s focus on the Big Money. Below is the Map signals Big Money Index. It measures likely buying and selling of Big Money investors. Sellers are in control when the yellow line falls. If it rises, buyers lead. The yellow line has clearly been falling for well over a month:

Election Day Fall

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Following is the BMI plotted against every election since 1990. Regardless of the winner, we see the same pattern nearly every time! If you managed billions of dollars, you would likely want to bet on sure things. Big Money investors don’t want to risk the unknown. Looking below, we see Big Money fleeing stocks heading into an election and gobbling them up after the election.

Each blue vertical line is election day:

BMI Multiple

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

2020 BMI

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

The current setup is visibly similar to several prior election years. What’s happening now from a data standpoint is that Big Money is likely taking some chips off the table heading into the unknown.

If history is any guide, Big Buyers will likely show up right around election day…usually shortly after.\

When it comes to water-cooler talk, the Forbes richest list can provide plenty of ammo. But when it comes to stocks, Big Money is mysteriously absent from most stock market discussion. While it may be unseen by most, I believe it is the most important component of the market’s future.

“What is seen must always be the outcome of much that is unseen.” – Hélène Adeline Guerber

All content above represents the opinion of Jason Bodner of Navellier & Associates, Inc.

Please see important disclosures below.

Also In This Issue

Global Mail by Ivan Martchev
Commodities Seem to Be Rolling Over

Sector Spotlight by Jason Bodner
We’re Fascinated with Big Money – Except When it Comes to Stocks

View Full Archive
Read Past Issues Here

About The Author

Jason Bodner
MARKETMAIL EDITOR FOR SECTOR SPOTLIGHT

Jason Bodner writes Sector Spotlight in the weekly Marketmail publication and has authored several white papers for the company. He is also Co-Founder of Macro Analytics for Professionals which produces proprietary equity accumulation/distribution research for its clients. Previously, Mr. Bodner served as Director of European Equity Derivatives for Cantor Fitzgerald Europe in London, then moved to the role of Head of Equity Derivatives North America for the same company in New York. He also served as S.V.P. Equity Derivatives for Jefferies, LLC. He received a B.S. in business administration in 1996, with honors, from Skidmore College as a member of the Periclean Honors Society. All content of “Sector Spotlight” represents the opinion of Jason Bodner

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