Nomura’s McElligott On October As The Anti-Status Quo And The ‘New’ Election Tail Risk

Nomura’s McElligott On October As The Anti-Status Quo And The ‘New’ Election Tail Risk

October's action in rates and associated thematic expressions in equities represent a "reversal" of the decade-old "status quo," Nomura's Charlie McElligott wrote Friday. As the market continues to buy into the Democratic sweep narrative, trades associated with a more reflationary macro backdrop are gathering momentum. This is quite ironic. As discussed here on Thursday evening, the last time we saw the 5s30s this steep was in the immediate aftermath of Donald Trump's 2016 victory. The Russell
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8 thoughts on “Nomura’s McElligott On October As The Anti-Status Quo And The ‘New’ Election Tail Risk

  1. I have seen no discussion for potential tax/regulatory management selling end of year. Case is Biden may increase taxes for those making more than $400k and gains this year could evaporate next year under supposed new regulatory regime. Closing two risks could be attractive to at least some.

    1. I wish I had the problem of worrying about my taxes going up because my household has an income that exceeds $400k per year. There are about 1.8B households in the world. Median (not mean), the median income is about $10,000 per year worldwide. $400k is like 35 standard deviations in a flawed model that uses Gaussian distribution. In the US, median household income is about $65k. $400k is about the 1% threshold.

      Households with $400k income per year are never going to be the Koch’s. They should put the tape measure away.

      1. My wife died on New Year’s Eve in 2019 and this year, under Trump’s tax law, my applicable bracket will rise two notches because of my reversion to single taxpayer status. Between that and my monster medical insurance costs (Medicare alone is $5500/year) I don’t need Biden when I got the Donald. Boy, do I need his legal and accounting team.

        1. An aside: 62yo single self-employed with a standard BCBS health plan that I pay $21,000 for (prem + deductible)
          I can’t wait to pay a monster $5500/yr for Medicare. Even with the other parts, I’ll be saving nice money once it kicks in.
          Our healthcare/insurance system is a mess

          Sorry to hear about your wife.

  2. “The Russell 2000’s monthly outperformance versus the Nasdaq 100 is among the largest since November 2016, when similar expectations of fiscal stimulus boosted small-caps.”

    Don’t forget a large part of the narrative was that small caps were more “inward-facing” so they would be better placed as Trump rolled out his aggressive trade policies.

  3. I think a lot of H’s strategist and his editing of it is great. But their time horizon is relatively short. I manage money for folks and there is only a bit of a lean in using these points from time to time. It is not great to react to the market on a 1 week to 90 day horizon. The unsaid read through on a lot of the stimulus is that it takes a long time for it to get there. February looks like a reasonable guess. You also must ask yourself why such stimulus is necessary? It is because there are tremendous deflationary headwinds out there. The upshot of this is that much of the stimulus spending thus far is to keep the wolf from the door. Was it necessary? Absolutely. But the end result will be slower growth afterwards as much of the stimulus is to be spent, not invested in productive assets. Until some of the big issues are adressed such as a tattered safety net, bad infrastructure, underinvestment in public goods such as health and education, and grossly bad income and wealth distribution we can expect subpar economic performance. I believe we can right the ship but it is going to take several years and we are facing a harsh fall and winter economically first.

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