Sunday, September 29, 2019

What would an Elizabeth Warren Presidency look like?

Preface: Explaining our market timing models
We maintain several market timing models, each with differing time horizons. The "Ultimate Market Timing Model" is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade.

The Trend Model is an asset allocation model which applies trend following principles based on the inputs of global stock and commodity price. This model has a shorter time horizon and tends to turn over about 4-6 times a year. In essence, it seeks to answer the question, "Is the trend in the global economy expansion (bullish) or contraction (bearish)?"

My inner trader uses a trading model, which is a blend of price momentum (is the Trend Model becoming more bullish, or bearish?) and overbought/oversold extremes (don't buy if the trend is overbought, and vice versa). Subscribers receive real-time alerts of model changes, and a hypothetical trading record of the those email alerts are updated weekly here. The hypothetical trading record of the trading model of the real-time alerts that began in March 2016 is shown below.

The latest signals of each model are as follows:
  • Ultimate market timing model: Buy equities*
  • Trend Model signal: Bearish*
  • Trading model: Bearish*
* The performance chart and model readings have been delayed by a week out of respect to our paying subscribers.

Update schedule: I generally update model readings on my site on weekends and tweet mid-week observations at @humblestudent. Subscribers receive real-time alerts of trading model changes, and a hypothetical trading record of the those email alerts is shown here.

Discounting a Warren Presidency
It began with two respected polls of Iowa and New Hampshire voters which showed Elizabeth Warren leading Joe Biden and the rest of the field for the Democrats` race for president, Last week, a national poll reported that Warren caught the previous front runner Biden by 27% to 25%, Wall Street has started to become unsettled at the prospect of a Warren nomination. A Washington Post article indicates that there is only concern, but no panic:
Wall Street is sounding the alarm over Sen. Elizabeth Warren’s rise in the Democratic presidential race, as investors start to grapple with the possibility the industry scourge secures her party's nomination.

One investor joked that the stock market wouldn't even open if the Massachusetts senator became president; a segment on CNBC featured the idea that married couples could get divorced rather than be subjected to Warren's "wealth tax."

For now, the rising nerves are mostly evident in chatter. There's an emerging consensus that a Warren presidency would hurt the stock market -- yet there’s little evidence that investors are pricing in the risk.

"From a pure markets perspective, a Warren nomination hardly seemed 'priced in,'" Chris Krueger of Cowen Washington Research Group writes. He offers a few theories why that's the case: The election remains far away; Warren could be seen as a weaker Trump foe; or that Warren will moderate her pitch if she secures the nomination. "In any event, buckle up."
Warren`s odds of securing the nomination at PredictIt has soared in the last few days. This presents the picture of two main contenders. Warren and Biden have left the rest of the field behind. (For the uninitiated, the PredictIt market allows participants to buy and sell contracts based on events. If that event occurs, the contract pays out at $1.)

Expect the markets to begin to price in the prospect of a Warren win in the days and weeks ahead. For investors, it is time to consider the implications of a Warren White House.

The full post can be found here.

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