“Markets rise on stimulus hopes”, but not for the reason you may think (SPY, VIX, JETS, etc)

by AllDatDalton

Its ya boy Milt who wrote those Tendie Stimulus DD’s. This is only meant to be political insomuch as it has a direct connection to market behavior.  Please don’t have a political debate in the comments and get me banned lol. I’d send polling numbers and shit, but don’t have time to look it all up before I start work.  The info is out there, though.

If you’re like me, you were confused last week as DT tweeted for and against the Stimulus, and volatility didn’t move with it.  We also saw a ton of COVID cases hit the administration, which caused overnight futures depression, but didn’t have the staying power to move SPY during trading hours.  The DOW is coming off one of it’s only good monthly runs of the year, and volatility is at absurd lows heading into an election.  What gives?

In the daily threads I see a lot of people attribute the stubborn upward movement to Stimulus hopes, and this is true.  Importantly, however, is that this is not hope Stimmy will get done before election–it is abundantly clear that won’t happen.  It’s also not market hopes that DT wins and makes good on his promise to deliver checks–the market follows pundits, and smart money, and all those have on a Mango loss (I’m not picking a side; I’m saying this is the information that is out there).  Lastly, it definitely ain’t hope that Trump’s tweet about a “bigger Stimulus than Democrats or Republicans want” will lead to a larger amount–Senate Republicans who are not McConnell have made it clear they won’t sign off on a large package, potentially not even the 1.8 trillion that the WH floated last week.

The market is preparing for a probable “Blue Wave”–Dem control of the WH, Senate, and House–and the massive stimulus that would pass as a result.

The initial HEROES Act the Dem House wanted to pass was over 3 trillion, which was brought down to 2.2 trillion in recent negotiations to make it at least seem like a good starting point for GOP discussions.  IF–and i do mean IF–pundits are correct in their predictions of a Dem sweep, then the House and Senate would have complete control over the amount and dispersion of funding for the next Stimulus.  The initial 3.4 trillion the Democrats wanted to pass could easily rise to a spiteful 4 trillion with zero obstacles from another party.  This explains a few obvious market trends recently, like SPY’s continued rise, but also less obvious ones like:

-The continued rise in tech even as valuations reach new heights and lockdowns ease: Dem wins would mean more stringent protocols, which benefits big tech (obviously) as stay-at–home stocks could have prolonged relevance.  Couple that with the upcoming earnings season, and you got a nice tech stew going.

-Absurdly depressed volatility: A “blue wave” would mean financial policy consistency and shared vision, meaning that whatever happens in congressional decision-making would be without a certain level of conflict and therefore, increased expedience.

-Solar and weed stocks mooning: this one is pretty obvious.

I’m not saying any candidate–or congress–is better than the other.  I’m saying that the bulk of predictions are on Dem wins across the board, and MMs are acting accordingly, riding the wave up before we get there with surprised Pikachu face when a Joe win doesn’t tank the market.  We saw how wrong polls can get it in 2016, but the numbers right now are pretty scathing. ———————————————- Plays: In the event of a sweep, I wouldn’t expect Dems to move slow, since winning across the board would be considered a “mandate”, and the Supreme Court nominating process will have them clamoring to clap back.  I’m looking at calls slightly OTM, one to three months out, for the stimulus winners on dips this week:

Recovery retail: Small business closures, more stringent protocols and having had another quarter to integrate online systems will be good for: WMT 11/27 155c TGT 11/27 170c M 1/15 9c LOW 11/27 185c

RUN is my solar play, they’ve taken a little bit of a beating but are in takeover mode via smart acquisitions and should head back up: RUN 11/20 75c RUN 12/28 80c

Airlines: JETS leaps for January, and SAVE 22c 3/19. I really like SAVE cause its focus is domestic travel, so even as business and international travel die with the larger changing trends, SAVE is in position to profit off of people getting Stimmy money to go visit their parents, etc.

Auto: had a big run during COVID, likely due in part to UI backpay giving folks a down payment ability who didn’t have it.  Obviously KMX and CVNA, but I am very bullish on auto insurance because they haven’t gotten a lot of attention.  I believe PGR is going to knock earnings out the park and I have (these are up 50%-70% since I bought this morning but that’s also partially IV) PGR 10/16 100c PGR 10/16 105c PGR 11/20 110c

Again, I really am not trying to say one candidate or party is better than the other, it’s just a logical explanation of what could be happening on a macro level, and I’ve worked in political fundraising for many years. Do your own research, because I bought UVXY calls last week. So, ya know.

*TLDR: Market doesn’t care about the daily stimulus hopes game, its banking on a Democratic sweep which would mean a larger and fairly quick stimmy getting passed. Think further out, post election, rather than trying to react to news everyday. *

 

Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence or consult your financial professional before making any investment decision.

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