Dow Jones futures and S&P 500 futures jumped early Tuesday, while Nasdaq futures rose modestly. With a market correction in force, a new stock market rally attempt is underway with Election 2020 finally here, with the latest IBD/TIPP Trump vs. Biden poll showing a tighter race.

There are two pieces to the issue of who will be governing the country over the next years. Biden appears to have the edge over Trump but that will not be certain until all votes are counted and all court challenges have been dealt with. A more likely case is that Democrats will probably gain control of the US Senate by a few votes. This by itself could lead to stimulus payments before the start of the next year and would be a boost for both the economy and the markets.

Investing Government Spending on Infrastructure

We have written about the sorry state of US infrastructure and how infrastructure spending on everything from roads and bridges to 5 G will drive the US economy. Interest rates are extremely low and likely to remain so for years. Thus, any government borrowing will be subject to low interest rates. A Democratic Congress along with a Democratic President will likely invest in a Made in America program focusing on infrastructure, green energy, bringing more manufacturing back to the USA, and driving consumer spending higher.

The shape of the economic recovery has been starting to look like an “L” or really wide “U” instead of the hoped for “V”. We could be looking at a recession that lasts for years, like the Great Depression, if a stimulus does not happen. A new administration with the same party in control of Congress will likely spend without concern for the budget until they get the economy moving and healthy again. This would provide a stimulus similar to WWII spending that forklifted the US economy out of the Great Depression.

Investing in a Post-election Stock Market Rally

If there is a strong post-election stock market rally, which sectors will benefit the most? If stimulus checks resume it will put money in consumers’ hands at the base of the economy and the result will a surge of spending on consumer goods. When infrastructure spending starts it will benefit construction and materials suppliers as well as the general economy because there will be more jobs. For many years the big tech stocks have been the best bet but that will no longer be the case. As such, the FAANG stocks may not fall but they may cool off. If we see a positive economic result from infrastructure spending, it will be repeated. That bodes well for long term investors in the sectors that will benefit.

Post-election Stock Market Rally – Slideshare Version

Post-election Stock Market Rally – DOC

Post-election Stock Market Rally – PDF

Investing During a Long Recession

Although things look better than they did when the virus first shut down the world economy, there is a long way to go to a complete recovery. The International Monetary Fund predicts only partial and uneven economic recovery into 2021. They note that things have not gotten worse because of “extraordinary” measures taken.

We have reached this point, largely because of extraordinary policy measures that put a floor under the world economy. Governments have provided around $12 trillion in fiscal support to households and firms. And unprecedented monetary policy actions have maintained the flow of credit, helping millions of firms to stay in business.

The four key measures that will be necessary to sustain and propel a recovery going forward are these:

Continuing the fight against Covid-19
Avoiding a premature drawback in stimulus measures
Institution of forward-thinking economic policies
Support of indebted countries, states, and municipalities

The relationship between your investments and the US economy will depend largely on how successful the fight is going forward.

Federal Stimulus Measures and Your Investments

Market Watch looks at the US economy and sees a risk of a setback.

The U.S. likely grew at a record 30%-plus annual pace in the third quarter, recovering much of the historic damage caused by the coronavirus pandemic in the spring.

But, many are worried.

Many are increasingly worried the economy will suffer another lapse, pointing to a fresh round of corporate layoffs and an uptick in coronavirus cases just as the fall flu season gets underway.  A slew of companies led by Disney DIS, -0.85%, American Airlines AAL, 1.15% and others have said they will cut thousands of jobs without any more aid.

Consumer spending, the lifeblood of the economy, would be in danger of faltering again if unemployment rises or people are prevented by the virus from going back to work, they say. And if consumer spending goes, so does the economy.

The initial stimulus payments, combined with historic efforts by the Federal Reserve, rescued the US economy from falling into the abyss. But, political gridlock has stalled any further help just as parts of the economy have begun to falter.

While congress dithers, the Fed and a whole host of economists have joined the chorus of those suggesting more stimulus payments. If, nothing happens during this term of congress, will there be help in the next? And, how will your investments and the US economy do in the meantime?

Intrinsic Value of Your Investments

We return again and again to the use of the intrinsic value calculation as a guide to rational and successful investing. Consumer spending is at the base of the intrinsic value pyramid. When there is money to spend it helps build the investment pyramid and when there is no money to spend the pyramid crumbles. Our expectation is that the next administration and congress will embrace a robust infrastructure program in the USA. This will drive the US economy and your investments. What happens before next year is anyone’s guess as a lame duck president and senate may or may not do anything to help the economy and your portfolio.

In the meantime, be careful with over-priced stocks at a time when the market could take another hit before heading back up.

Your Investments and the US Economy – Slideshare Version

Your Investments and the US Economy – DOC

Your Investments and the US Economy – PDF