The BBT algorithm’s negative post-election sentiment readings intensifying for the last three days of the trading week ended Friday November 6, 2020, indicate that the US stock market will trend steadily lower for the foreseeable future. The probability is high for the Dow Jones 30 Industrials and the S&P 500 composite indices to be below their post-election highs on January 20, 2021, the date of the US Presidential inauguration. See “Bull & Bear Tracker 100% accurate in predicting Volatile Election market moves”, November 3, 2020.
For the first two days after the election, the Dow Jones 30 Industrials composite gained enough for it to produce its biggest weekly gain since April 2020. However, after a much better than expected October Jobs report on Friday November 6, 2020, the Dow declined. See “Job growth stronger than expected in October, unemployment rate slides to 6.9%”, CNBC November 6, 2020.
The rationale for the initial two days of gain was the Republican party maintaining its control of the US Senate. The indices had discounted a Democratic sweep which would have resulted in the Senate being controlled by the liberal party.
Mr. Biden winning the Presidency and the Republican party maintaining control of the Senate was the best possible long-term (two-year period through 2022 elections) outcome for the stock market. The combination was also the worst short-term outcome.
The rationale supporting the best long-term Biden outcome was a Republican Senate since it would not agree to increase income taxes. The market’s worst short-term outcome, a Biden and Republican majority for the Senate, would result in no additional stimulus or less stimulus. Both no stimulus and less stimulus keeps interest rates from rising and unemployment rates from declining.
Even though the best long-term post-election scenario won out stocks in the US will remain in a secular bear market or steady downtrend which began in February 2020, through at least 2028. The 4th secular bear market since 1929 began after the aggregate valuation of the 30 Dow stocks to GDP reached as high as 132% in early 2020. The two prior bulls had ratios of 116% and 123% at their peaks.
The chart below depicts the Dow to GDP ratios at the secular bear market bottoms.
Chart below depicts the durations and percentage declines for past three secular bears.
To learn more about secular bear markets and why they should not be confused with a cyclical bear market view “4th Secular Bear since 1929 caused by Coronavirus” video below. Included in the video is the five proven secular bear investing strategies.
Long and short ETF trading products which are powered by the BBT algorithm enable an investor to profit from a declining stock market. Click below to watch a video about the BBT’s performance metrics including track records and risk tolerance levels for the algorithm and the Bull & Bear Tracker products which it powers. For the 12 months ended August 31, 2020, the BBT produced a gain of 97.7% vs. a gain of 18.8% for the S&P 500.
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