B. Riley Wealth Management Advisor Talking Points: Slowing Economy & The Elections

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Market Commentary


There Is A Wall Of Worry!

Last month, I warned investors to “buckle up” because the stock market would be very volatile right before and after the election.

Here are a few items on my Anxiety and Uncertainty List that could impact the markets:

  • The U.S. elections next week
  • A high probability we will not know who won the election for weeks
  • The high probability the election will end up being decided by the Supreme Court
  • A record surge in new Covid-19 cases, hospitalizations, and deaths
  • New restrictions on movement and businesses could severely slow economic recovery
  • Investors are still guessing when a safe and effective vaccine will be available
  • Widespread vaccine availability not likely until this time next year
  • Until the U.S. eradicates this virus, it’s going to be a cloud over the economy
  • Investors have given up on a new stimulus package before next February
  • Without a stimulus package, the economy will continue to slow
  • Both election concerns and the trajectory of the surge in Covid-19 could send stocks to lower levels the next month
  • The push and pull of these factors will have investors bracing for turbulence

The election will be over next week and hopefully we will know who our next president is before Christmas.

But we may not have any certainty on many of the issues on this list until the end of 2021. With the stimulus running out, the stock market overvalued, and a lack of political leadership in Washington D.C., the economy is slowing and trending sideways and could turn down in the not too distant future.

I don’t see a recession anytime soon, but 2021 will be a year when investors need to be cautious. With all the questions about politics, surges in COVID-19, a safe and effective vaccine distribution, the direction of the economy, and high unemployment, investors should review with their financial advisors the level of risk management needed to protect their investments during a volatile and uncertain period.

The U.S. Elections Are Next Week—VOTE!

We are now one week out from Election Day in the United States. Investors seem to have priced in a victory for Joe Biden, with betting markets putting the odds of a win for the former vice president at 63%.

Biden is currently ahead in the polls, but there are indications that battleground state polls are tightening, and the Electoral College could become a close race. Prudent investors need to remember the advice of that great American philosopher, Yogi Berra, “it ain’t over till it’s over.”

The National & Electoral College Polls

It is all about the Electoral College and getting to the magic number of 270 votes to win the White House.

Biden currently has the largest lead at this stage of a race since Bill Clinton in 1996. Even when Barack Obama was out one week from the election in 2008, he wasn’t ahead by this much.

By basically any measure over the last 20 years of American politics, this is the most significant lead that any presidential candidate has had in the national polling one week before the election.

Right now, Biden has a lead of five points or more in states that represent around 300 electoral votes, including the states carried by Hillary Clinton plus those three Midwestern battleground states that got away from her four years ago − Pennsylvania, Michigan and Wisconsin − and Nebraska’s second congressional district.

Beyond that, Biden has a small lead in states like Florida, North Carolina, Arizona and Iowa, where wins could get him up to 334 electoral votes.

Does Trump Have A Pathway To Victory?

President Trump has a narrow path to victory, but there are only so many ways to get to 270 electoral votes.

It sounds crazy, but Biden is either tied or just slightly behind in many formerly solid Republican states. So President Trump has to start locking down these Republican battleground states like Florida, Arizona, Texas and North Carolina. If he can’t do that, it’s basically over.

Trump then needs to win any one of Pennsylvania, Michigan, Wisconsin or Minnesota. If he wins the Sun Belt states and any one of these Midwestern states, Donald Trump could win.

However, Joe Biden has a comfortable and consistent lead in the polls, outside the margin of error, in Pennsylvania, Michigan, Wisconsin and Minnesota.

The Presidential Election Today

According to RealClearPolitics.com (RCP), and their average composite of all presidential polls, if the election were held today, President Trump would lose the popular vote with 43% vs.  50.8% for Biden.

This is the U.S. Electoral College map of “toss-up states:” (Data: RealClearPolitics.com – October 26, 2020)

State Biden Trump RCP Average
Michigan 50.6 41.6 Biden +9.0
Minnesota 48.0 42.0 Biden +6.0
Wisconsin 49.8 44.3 Biden +5.5
Nevada 49.0 43.8 Biden +5.2
Pennsylvania 49.8 45.0 Biden +4.8
Arizona 48.8 46.4 Biden +2.4
Florida 49.0 47.2 Biden +1.8
North Carolina 48.8 47.6 Biden +1.2
Iowa 47.2 46.8 Biden +0.8
Ohio 46.2 46.8 Trump +0.6
Georgia 46.8 47.2 Trump +0.4
Texas 45.4 48.6 Trump +3.2


Even Trump Does Not Believe Republicans Can Retain The Senate

During a private, $250,000 per couple, closed-door meeting of campaign donors in North Carolina last week, President Trump admitted what all polls show — the Republicans will most likely lose control of the Senate.

Republicans currently hold a 53-to-47 majority. Democrats only need to gain three seats to gain Senate control.

Republicans had broken down their campaigns into two groups. The most vulnerable Senators are Sens. Susan Collins of Maine, Cory Gardner of Colorado, Martha McSally of Arizona, and Thom Tillis of North Carolina. All are likely to lose.

The second most vulnerable group includes Sens. Joni Ernst in Iowa, David Perdue and Kelly Loeffler in Georgia, and Steve Daines in Montana.

It could be January before we know who finally controls the Senate because Republicans are all but certain to be competing to win runoffs in Georgia in January 2021.

Republicans are also scrambling to save once safe seats, including South Carolina where Sen. Lindsey Graham is being massively outraised and outspent by Democrat Jaime Harrison.

There is only one vulnerable Democrat who will probably lose, Sen. Doug Jones of Alabama.

The Economy Is Starting To Slow & The Stock Market Is Still Overvalued

Year-to-date, as of October 26, 2020, the S&P 500 Index is up 7.26%, and for the past year, it is now up 15.34%. The tech-heavy NASDAQ Index is up year-to-date 28.71%, and it is currently up 42.22% for the past year.

For over two months in these Market Commentaries, I have been warning that the U.S. stock market was overvalued by almost all traditional measures.

Also, parts of the economy are starting to slow, especially employment growth. Recent data and trends show how difficult it will be to create significant numbers of new jobs if we can’t fully reopen the economy. We are continuing to see substantial gains in manufacturing and services, but these industries will not wholly offset the unemployment in other sectors.

According to Factset, the forward 12-month Price Earnings Ratio (P/E) for the S&P 500 Index was 21.7 as of Friday. That means the S&P 500 Index could be overvalued by more than 17% compared to the 5-year forward P/E average of 17.3.

I have warned that investors should not be surprised to see a 10% or more pullback or correction from current prices over the next few months. This would be the start of a normal, healthy reversion to the stock market’s long-term trend of a forward 17 P/E ratio.

So it is likely we will see more declines and volatility before and after the election, but because the stock market is overvalued, such a pullback will be an entirely normal and healthy correction. Sometimes the markets get ahead of themselves, and then they adjust. That is what is happening now.

S&P 500 & NASDAQ Indexes Continue Their Pullback

This past week, the S&P 500 Index and the NASDAQ Index continued to trade sideways. You can see the volatility.



As we look at the current state of the overall underlying U.S. economy, we can see from this week’s ECRI Weekly Leading Index of leading economic indicators that the economy is slowing and starting to move sideways. I expect this sideways trend to continue into the first half of 2021.


How Should An Investor React?

Stay invested in the stock market! If you looked at the historical stock market performance charts when there were similar fears over the SARS virus and the MERS virus, they were all short-lived, and investors were rewarded for staying in the stock market.

The same will happen no matter who wins the election.  In modern times, there has never been a correction (defined as a 10% drop in the market) after a presidential election  −  not even after President Obama’s election win during the height of the 2008-2009 recession.

As the great investor Warren Buffett has said, “Patience is always the friend of the investor.”


NOTE: This report is authorized for distribution to clients

Paul Dietrich, Chief Investment Strategist, B. Riley Wealth Management

Paul Dietrich is focused on managing investments for private investors, retirement funds, and private institutions throughout the United States. He also serves as a frequent on-air commentator. He regularly contributes market analysis to business and financial media, including CNBC, Fox Business, Bloomberg TV, CNN, The Wall Street Journal, Yahoo! Finance, Reuters, and The Washington Post.


Information and opinions herein are for general use; are not unbiased/impartial; are current at the publication date, subject to change; may be from third parties, and may not be accurate or complete. Past performance is not indicative of future results. This is not a research report or solicitation or recommendation to buy/sell any securities. B. Riley Wealth Management is not engaged in rendering legal, accounting, or tax preparation services. Opinions are the Author’s and do not necessarily reflect those of B. Riley Wealth Management or its affiliates. Investment factors are not fully addressed herein. For important disclosure information, please visit  www.brileywealth.com/legal-disclosures.


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