Should Investors Change Course Because of the POTUS Diagnosis?

We have a modest economic calendar including the ISM non-manufacturing index, JOLTS, jobless claims data, and the NFIB index. The Fed minutes from September’s meeting will be released. The Vice-Presidential debate is set for Wednesday.

None of this will lead the daily news headlines as everyone monitors President Trump’s condition. This is important for many important reasons not the least of which are national security and the economy. That said, investment decisions can have long-lasting significance and decisions are in our own hands. It is important to ask:

Should investors change course because of the President’s illness?

Last Week Recap

In my last installment of WTWA, I began a review of key elements during the pandemic emphasizing what knowledge was available at each stage. I also wrote, “The first Presidential debate is scheduled for Tuesday evening. It will command a lot of attention, but probably will not be a market-moving event.”

There certainly was plenty of attention as pundits of all stripes described how terrible it was. Opinions were reinforced on both sides as everyone claimed victory. By Friday, this did not matter either, as attention turned to Pres. Trump’s COVID-19 diagnosis.

The Story in One Chart

I always start my personal review of the week by looking at a great chart. This week I am featuring Jill Mislinski’s version of the prior week. The callouts also show the large range of Friday trading after the POTUS COVID announcement.

The market gained 1.5% on the week. The trading range was 5.3%, higher than in recent weeks. To help readers keep perspective, I provide regular updates of historical and expected volatility in my Indicator Snapshot (below).

The weekly sector chart shows the sources of the action. Readers seemed to prefer the longer time frame, so I am showing the 26-week version.

Juan Luque, the member of our trading team who works most closely with these trends, provides some additional interpretive information this week. (I am doing only light edits to these comments so that readers can learn official “traderspeak.”)

Many readers might wonder how these charts are made and what they measure. As I have mentioned before, the RRGs are the visual representation of the performance of instruments relative to a benchmark. The Horizontal axis is the RS-Ratio, which measures the trend and its relative strength. The Vertical axis is the RS-Momentum, which measures the rate of change of the trend. The lines in the chart have different colors all with a defined meaning. In traffic lights Red means stop and Green means go. Similarly, in the RRG the sectors in redish fonts represent weak momentum and weakness and Green represents strong momentum and relative strength. The background colored arrows show the theoretical movement around the benchmark and are also displayed in the same color arrangements.

This week shows the continuation of gained momentum and strength for utilities, real estate, and consumer as they have crossed to the improving quadrant. Financials and industrials maintained their strength. It is interesting to see the energy sector trapped yet one more week in the lagging with no sign of recovering.

(The sector names are here. The Bloomberg symbols add “S5” at the start of the name. The small square is the current value and other points are the history).