by Gary Alexander

July 28, 2020

As we approach the end of July, it’s time to talk about some important mileposts in the last five months of this most contentious year in at least 50 years – and perhaps longer. With the important caveat that it is totally impossible to make predictions about a year that has so far delivered an unpredictable virus attack, followed by an epidemic of urban riots amidst a stated national policy of personal distancing and business lockdown, I will submit three (maybe four) predictions about the final five months of this schizoid year:

Prediction #1: The August-September “Hurricane Season” Will Hit Wall Street Hard … Again

The hurricane season began in the Gulf of Mexico this weekend with a small (Category 1) Hurricane Hanna blowing into Texas – nothing to worry about – as boring as the 0.3% decline in the S&P 500 last week. We’ll likely see bigger hurricanes and bigger market corrections sometime in the next two months.

Late summer disruptions are normal, especially in the last 20 years, according to this chart from Bespoke:

Average Monthly % Change for the Dow Jones Industrial Average Bar Chart

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

Going into July, I had high hopes that we could escape the normal market hurricane season in August and September, but the resurgence of Covid-19 cases and a rise in the death count has resulted in a reversion to business closures and state lockdowns, which doesn’t bode well for a business revival this summer. Even without 2020’s surprise epidemic, August and September have been the worst months since 1950.

Average Monthly Standard and Poor's 500 Index Returns Bar Chart

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

We’re also entering the final two months of the federal government’s fiscal year (ending September 30), in which the deficit is expected to top $4 trillion – three times the previous record worst, in 2009. The CBO says that federal spending in the first nine months of fiscal 2020 topped $5 trillion, and Congress is now considering a fifth “stimulus” bill, which could balloon the deficit even higher by September 30.

And now, in an amazing surrender to Modern Monetary Theory (MMT), former Fed Chairs Janet Yellen and Ben Bernanke, in testimony to Congress on July 17, backed current Fed Chair Jay Powell in turning loose the monetary spigots without limit, when they said that they “would further increase the already record-level federal budget deficit.” However, they did admit that “at some point, we will have to think through how to ensure the long-run sustainability of federal finances.” But not now, Lord – recalling the Confessions of that 4th Century Saint, Augustine, who prayed, “Lord, make me chaste – but not yet!”

Prediction #2: The Election Will Result in “Gridlock,” Lifting the Market Higher in November

In the upcoming election, I’m voting for my portfolio by saying I prefer an outcome promoting “gridlock” in Washington DC. If President Trump wins, the market would likely do better if the Democrats retain control of the House. As distasteful as the resulting partisan bickering seems, business does better when the government interferes less in the lives of most Americans, and a gridlocked government fits that bill.

Standard and Poor's 500 Performance during Gridlock Bar Chart

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

Likewise, if Joe Biden wins the White House, our portfolios would be better off if the Republicans took back control of Congress, to prevent the imposition of the high-spending plans Mr. Biden has adopted from the far left-wing of his party in his recent platform papers. It would be destructive to most of our portfolios to see a massive tax increase to fund a Green New Deal and a series of new social programs.

In a move to win over the dominant Sanders/AOC left wing, Joe Biden and Bernie Sanders crafted their “Biden-Sanders Unity Task Force Recommendations,” released July 8. That day, Sanders told MSNBC that this agenda “if implemented, would make Biden the most progressive president since FDR.”

P.S. Pay no attention to the polls. They don’t mean anything, just like in 2016. Voters will hide and wait, voting for one Party for President and another Party for Congress, based on their policies and positions.

Prediction #3: Investors Will Start to Buy Companies with Solid Earnings, Not Just “Fad” Stocks

We have an uneven economy and an unbalanced stock market today. Last week, NASDAQ reached a new high at 10,840 on Tuesday, July 21, up 63.5% in less than four months from its March 23 lows, based in large part on the four MAGA stocks worth over $1 trillion each. Even after correcting 4.4% in the following three days, NASDAQ is still up 15.5% year-to-date, while the Russell 2000 is down 12% and the Dow Jones Industrials are down 7.25% YTD, with some solid companies garnering no respect.

Navellier & Associates owns Apple, Amazon, Google or Microsoft, in managed accounts. Gary Alexander does not own owns Apple, Amazon, Google or Microsoft in personal accounts.

After the virus runs its course and the economy gets back humming in 2021, our new set of politicians can’t help all that much, but they could certainly hurt the recovery with a new tax increase. The best thing they could do is get out of the way and let our pent-up animal spirits do what Dorothy Fields counseled:

Nothing’s impossible, I have found
For when my chin is on the ground
I pick myself up, dust myself off
And start all over again

– From “Pick Yourself Up” (1936)

Bonus prediction #4: I suspect that if Joe Biden wins, our schools and businesses will suddenly begin to open, and the urban riots will suddenly end – just because a less alienating President will be in charge.

The stocks Louis Navellier and his team of analysts cover each week are the likely winners I would buy on dips in August and September. After that, the fourth quarter has had a phenomenal run in recent years.

From 1999 to 2018, the fourth quarter provided nearly four times the gains as the first three quarters combined – and that includes the dismal -18% decline in the fourth quarter of 2018.

Dow Jones Industrial Average Performance by Quarter Table

So, the calendar is already in our favor. If some sports open up, America will have something like a mini-World Series for the short baseball season, some NFL or college football games to root for (on TV, if not in person), so maybe we can get back to some semblance of normal when the calendar flips over to 2021.

All content above represents the opinion of Gary Alexander of Navellier & Associates, Inc.

Please see important disclosures below.

Also In This Issue

Global Mail by Ivan Martchev
The Federal Government is Pushing Higher Inflation

Sector Spotlight by Jason Bodner
What a Difference a Year (or More) Makes

View Full Archive
Read Past Issues Here

About The Author

Gary Alexander

Gary Alexander has been Senior Writer at Navellier since 2009.  He edits Navellier’s weekly Marketmail and writes a weekly Growth Mail column, in which he uses market history to support the case for growth stocks.  For the previous 20 years before joining Navellier, he was Senior Executive Editor at InvestorPlace Media (formerly Phillips Publishing), where he worked with several leading investment analysts, including Louis Navellier (since 1997), helping launch Louis Navellier’s Blue Chip Growth and Global Growth newsletters.

Prior to that, Gary edited Wealth Magazine and Gold Newsletter and wrote various investment research reports for Jefferson Financial in New Orleans in the 1980s.  He began his financial newsletter career with KCI Communications in 1980, where he served as consulting editor for Personal Finance newsletter while serving as general manager of KCI’s Alexandria House book division.  Before that, he covered the economics beat for news magazines. All content of “Growth Mail” represents the opinion of Gary Alexander

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