My Prediction for the Post-Election U.S. Stock Market Reaction

by John Galt
November 5, 2018 05:00 ET

As this guy reminds us on an almost daily basis, the stock market is still around all time highs:

But what happens on November 7, 2018 and the post-election hangover?

This is my quick and dirty assessment (as promised) of what I could see happening between now and the end of the year in equities only, with some hope that one scenario pans out; because the Democrats having a great night will be a much greater nightmare than anyone could imagine.

So let’s start with the happy thoughts scenario….

1.The GOP Gains Seats in the Senate and Barely Holds the House

The Trumper celebration will be YUGO. But the stock market? After an initial surge in upward momentum and probable 2-3% rally, I look for the correction to continue for about two more weeks, finally bottoming out at the edge of a bear market as defined by the S&P500 dropping 20%+. While numerous individual issues are already in a bear market, I think the ultimate decline will be about 15 to 17%, maybe 18% at the most from recent highs.

Why?

This decline and bear trap way past due. The virgins in the market need a scare, Wall Street needs a break, and a good old fashioned equity market terror run might cause the Fed to pause in December. If they do indeed pause in December, the please stand clear of the launch pad. Why?

Because the Santa Clause Rally in the first of December will break the backs of the shorts and cause severe whiplash to the Debbie Downers. I would expect to see a 10-12% move, with a one day 4% or more move even possible if the geopolitical situation remains calm.

After this year however, ugh. I have bad news for the world and equity gamblers because national impotence and irresponsibility could cause stock markets globally to get seriously ugly.

2. The Empire Strikes Back or How I Learned to Love TEOTWAWKI on Vodka (Democrats Win)

Yeah, even if the Dimocrats only seize the House of Representatives, it will be THAT bad.

During the week after the election, look for wild sell offs, wild rallies, and a market that looks a lot like this past October. Then look for the usual insanity from Dimocrat Party leadership proclaiming they will try to work with Trump, etc., etc.

That is about the end of the good news. From there stocks will fluctuate wildly up until the Federal Reserve announcement in December where I do look for them to increase rates again. The wild 3-8% monthly market swings up and down will continue into next year until the budget deadlock hits. And that’s when we all have to learn to love the bomb or take eat our fair portion of the shit sandwich which will be served up to our economy in Q1 2019.

There you have it. Nothing is going to be fun for the uninitiated. We are in totally uncharted territory historical so historical means and technological analysis using past norms are out the window.

There has never in history been a period where the U.S. Central Bank is contracting liquidity, the government increasing debt, and the rest of the economy’s participants doing whatever seems to feel good at the moment. Thus uncertainty leading to very, very bad things appears to be on our horizon. One political party can delay it if they have the will; the other can accelerate it much like they did in 1930.

Suck it up buttercup, prepare for impact.

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