All of the major indexes bounced for a second straight day on Monday, and they have recovered a portion of the losses that were triggered last Wednesday by the Fed interest-rate decision. Big-cap technology names have lagged, but the DJIA is in the lead and testing its highest point since late August.
The primary issue for market participants now is navigating the results of the election and positioning for the very important CPI report that is due on Thursday.
The market is clearly anticipating a Republican win Tuesday night and has embraced the theory that gridlock is a market positive as it will prevent additional government spending and stop further policy moves by the Biden Administration.
According to an NBC poll, 72% of voters say the country is on the wrong track, which is the lowest percentage ever in the history of the poll for a midterm election. People seem to want some change, and they are likely going to get it, which should be a market positive.
The question now is how much of the election results have already been discounted by this recent bounce and whether there will be some surprises when the results are tallied. The greatest uncertainty is the Senate, and if there is a problem counting votes in states such as Pennsylvania or a run-off in Georgia, then the results will not be known for a while. That will likely cause a negative reaction, although there seems to be little doubt that the Republicans will take control of the House and guarantee gridlock.
Three market sectors are likely to be the most impacted by the election results -- energy, sports betting, and cannabis. There should be increased movement in all three areas on Wednesday.
Another issue is that immediately after the election results are digested on Wednesday, market participants will be positioning for the CPI report on Thursday. A big run-up into that news will be a problem, just like it was in front of past reports and Fed decisions.
There is going to be plenty of short-term volatility to contend with, but the good news is that we are seeing better chart development, and that bodes well as we head into the next Fed decision and the positive end-of-the-year seasonality.
Bitcoin is under pressure again due to concerns about FTX, which is a major crypto exchange. This sort of weakness often spills over into the more speculative areas of the stock market.
It is going to be tough to make any major moves in front of the election results and CPI, but the market is developing well, and I'm growing more optimistic about better trading into the end of the year.