Biden has taken the win in an extremely close election. At this stage, the democrats will have the majority in the house, but the Republicans will retain the majority in the Senate. This has led to many believing that Biden will likely be able to get his stimulus through but will struggle to get corporate tax increases through the Senate. US Markets should rise here into Christmas if we see progress in Fiscal Stimulus. The other issue that may see markets lower would be if Donald Trump shows evidence of Fraud causing a revote.
Locally everything is set for the market to continue higher. We have everything we need to keep sentiment positive; an extremely accommodative RBA, a very stimulatory budget and an economy that is starting to reopen. The two major negatives I see overall for us right now is the rising Australian dollar and the trade issues with China.
China is trying to send a message, but Australians do not stand being bullied, so we will be standing our ground, but not looking to escalate either. In the short to medium term, many exporters will feel the pinch, but many are expecting that new deals and supply chains will be found. At this stage, it seems issues with China are contained to only lobsters, sugar, coal, timber, wool, barley, and copper. We expect China will slowly become less dependent on Australian Iron Ore in the future but will not be able to do much about it in the short term.
With positive leads from overseas, our market is expected to open higher near 6225 – the top of the channel and our post fall highs. The positive leads come from a Biden win and Republican senate: stimulus can be passed, but anything too partisan (like tax increases) will likely face gridlock. The market not only get its cake but can eat it too.
Despite the strong fundamental leads, technically we are trading at the top of the channel. This key level of resistance may stop our market from pushing too hard and we may need to see U.S markets break into fresh all-time highs to see us through. This has proven to be the case in the past, but with the election and virus behind us (for now) and our market looking comparatively cheap, perhaps we could get through without U.S permission. We should know by the end of the week.
If we do get though, there are many levels of resistance to look forward to – basically every 100 points. But we must look back at a time where the market was trading quite differently and so the validity of these levels comes into question. If we fail here, 6100 and then 6000 are the targets.
US shares were fairly flat on Friday, treading water with the presidential election still undecided. However, over the weekend the election was called in the favour of Democratic Candidate Joe Biden and with some of the uncertainty around the election now removed, US futures have started to tick higher. Regardless, last week was the best for months for US shares, with equities traditionally rallying after major US elections. These elections should also increase the probability of further stimulus coming for markets, who have been expecting a fourth US fiscal stimulus package for some time now. US unemployment data released on Friday was also much better than expected, helping with the positive sentiment. Telecoms, Tech, and Basic Materials stocks were the strongest performers on Friday, while Oil & Gas and Financials were the weakest.
Technically, the S&P 500 is sitting just below the all-time high resistance at 3,600 index points. Should the index break higher from here, it will be trading at levels never seen before, so it is hard to say where a rally might stall. It the index holds resistance and falls, the first target would be some potential support around 3,400. The index is up trending in the short and long term, so don’t be surprised if we see fresh highs soon.