The easy headline Monday is that an increase in Covid-19 cases and a lack of progress on a fiscal stimulus bill triggered broad selling. It was the worst drop for the Dow Jones industrial average since Sept. 3. The selling was extensive with about six stocks dropping for each one that advanced. New 12-month lows were still quite minor at around 75, since the indices are still far above the lows hit back in March.
While it was a very poor day, the explanation for the action is a bit murkier. This is a market that has been threatening some corrective action as we head into the uncertain of the election and that is what we are seeing now. While the increase in Covid cases is worrisome, there is not yet any major economic fallout. Some shutdowns are threatened, but for the most part, the economy is still reopening in many parts of the country.
Some markets are driven from the top down due to macro headlines and some markets are driven from the bottom up by individual stocks and sectors. This has been a bottom-up market, but the big-picture narrative did gain a little traction.
We are now going to head into a big pile of earnings reports, but the major danger we face is worries about unclear election results. The market can deal with a clear winner of either party, but if there is a dispute it is going to be much more difficult to regain some traction.
I still like many individual stocks and am inclined to buy some in the weakness, but I want to see some more upside action, before I put cash to work aggressively. I'd be much more worried about this market if stocks were being dumped without regard to merit, but I'm not seeing too much of that yet.
It's a long wait to election day and we are in for a rocky ride as partisans root for their favorites.
Have a good evening. I'll see you tomorrow.