IB Net Payout Yields Model

The Obama Rally?

As we watch the S&P500 surge 4% to over 1,000, it has probably caught alot of people off guard expecting a further selloff with Obama likely to win the election today. The market has enjoyed a nice rally the last couple of weeks following widespread panic selling and hedge fund liquidations over the previous couple of months. We're now likely seeing a rebound as the market is now seeing more certainty with the election finally happening. The market has likely more then discounted a Obama win and is now coming to grips with the facts that the world won't end. In fact, we've lately heard that Obama will likely delay the expected tax increases until maybe 2010 at the earliest.

As usual it appears the market has priced in the worst case scenario and now is waking up the reality that world isn't going to end. After such a huge run, it's likely that the market will use the 1,000 point area as a place to pause before the ultimate rally. We'll likely see 940 or 960 on the downside and possibly as low as 900. When that happens, it will likely be the best buying opportunity we've seen in 30 years. History has generally favored strong rallies in the first year of a Democratic presidents reign especially when the prior year has seen a big selloff in anticipation of his election. Markets always over react and it's likely that 2008 was no exception.

In previoius articles, we've made a strong case for the compelling valuations in the market. Now is the time to act upon them.

Edit: Market finished strong on 11/4, but has started 11/5 off weak as weak economic news comes back to focus. ADP reported a weak jobs number and ISM Services index was sub 45 indicating a very weak Oct. Would expect the market to be weak the reast of the week retesting 940 or 900.

Edit 11/6: wow... the market reacts so fast these days. As of 11am est, the S&P500 is already sub 930 and setting for a potential move to 900. Expected this to take longer then 2-3 days. With worldwide rate cuts, the world economy is bound to start looking better in 6-9 months. Getting more and more difficult to be on the sidelines.


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