Comments by Larry Kudlow that a fiscal stimulus deal was unlikely to occur soon triggered another round of selling that has dropped the major indices over 2%, with the DJIA leading to the downside with a decline of 2.5%. The hope for a deal had helped to delay more cautious positioning into the election but now there is no reason not to move aside and wait for the smoke to clear.
While there is no immediate support for the indices at this point this selling looks to be driven more by positioning rather than concerns about valuations and a weak economy. Despite the growth in Covid-19 cases that is receiving so much press, there has been far less concern about the economic impact. The likelihood of more severe economic lockdowns is quite remote, treatment options have improved and a vaccine will likely be available fairly soon.
Many stock traders seem to be looking beyond the Covid crisis at this time but they have to navigate the election, the stimulus and other political issues in the short term.
We have needed deeper correction action for a while so now is a good time for it. The eventual resolution of the election -- regardless of the results -- will be the catalyst for another leg up.
Normally price action of this sort in the indices would make me much more negative, but I'm not seeing intense selling in many of my smaller-cap favorites and that makes me more positive. There still seems to be a focus on good fundamentals and charts.
This is not the sort of extremely correlated selling where everything is thrown out without regard to its merits.