Buy the dip, sell The Dip
Normally, I would agree with the saccharine argument that politicians take too much credit for good economic times and get too much blame for bad economic times. Not with Joe Biden.
For those looking to buy the current equity dip in order to make some quick short-term coin into year-end from a GOP takeover of Congress, you can start buying next week. If you think there’s going to be a bounce ahead, it’s good to get in front of it, since most of the big gains from a short-term bear market rally happen only over a few short days. That is, by the time you’ve been given a clear buy signal.
Sure, the market could correct even further between now and the election, maybe even 10-20%. But, you are now at, or soon will be, a tipping point where the risk is to the upside, especially with several profitable companies already down 70-80% from their all-time highs.
The situation is shaping up this way. In May, the GOP had a clear polling advantage as inflation started to bite. It was looking like a midterm wave election, as Biden failed mightily in key areas: crime, the economy, inflation, the markets, and at the border. Then the SCOTUS Dobbs decision caused polling to dramatically break trend, as the Dems actually took a lead in generic polls from mid-summer till mid-September.
Over the last few weeks, as inflation remained high, the economy slowed, and interest rates remained sky-high, the GOP again took a small lead on the generic ballot. This pattern should hold steady through the midterms, as the economy/inflation regains its status as the top concern of voters.
In the best Don Draper tradition, the Dems have tried mightily to change the conversation. They did their level biased best to cover up their failures on the economy, the border, crime, and corruption with a drumbeat of messaging from Democratic media on the theme of "democracy" (code word for January 6). But when upper-class earners are moving from Whole Foods to Walmart for bargains, and middle-class earners are moving from Walmart to Dollar General, no amount of disinformation and distraction can occlude the bare economic facts on the ground. And independents that Dems hoped to sway with their phony sledgehammer messaging on the very things they themselves are guilty of know hypocrisy when they see it.
If the Democrats actually cared about "democracy," they would have held hearings on the Summer of Insurrection, and Democratic collusion in the riots, arson, theft, and general mayhem. They would have launched an investigation into Speaker Pelosi's failures on January 6, her possible violations of the STOCK Act, and the Democratic role in fostering and spreading the Steele Dossier lies and Trump-Russia collusion canard, as well as their role in FISA court abuse. But they are not doing any of that. So the "democracy" meme is going nowhere, except with uber rich liberals who don't have to worry about inflation.
Biden may try some pathetic wag-the-dog Hail Mary on Ukraine before the election, but it won't change the electoral landscape. Americans are generally ignorant of foreign affairs and care little about them even in the best of times. Besides, savvy independents know that at the root of Biden's aid to Ukraine is the crazy conspiracy that Russia caused Trump to win in 2016. Since today's Democratic party is really only about four things––race wars, redistributionism, statism and Trump derangement syndrome, and TDS above all else––it's clear why even peacenik Dems so fulsomely care about regime change in Moscow. They want to punish Putin for the falsely alleged collusion with Trump, even though Putin was actually interested in creating division regardless of who won in 2016. Foam-at-the-mouth Democrats and anti-Trumpers have been all too happy to help in this effort.
Because the Dems’ Hail Mary gambits will fail, the GOP is going to win the House. The only question is by how much. I am sticking by my earlier prediction of a moderate 20-30 seat pickup. The GOP only needs one extra seat in the Senate. And I think they will get it, as key Senate races tighten in Nevada, Georgia, and Pennsylvania and Ron Johnson pulls away in Wisconsin. Just a few GOP House gains or one net Senate pickup and the entire Biden spend-o-rama grinds to a halt. This could cause inflation to taper all on its own. And since the market historically prefers gridlock, you should get a nice equity bounce.
Normally, I would agree with the saccharine argument that politicians take too much credit for good economic times and get too much blame for bad economic times. Not with Joe Biden. The pandemic relief approved under Trump definitely pushed the envelope on spending. But we could have gotten away with it if we had held the line on spending after the big airplane drop of cash. We knew there would be fraud, and there was, but we didn’t care too much. It got the job done and that was to be the end of it.
Biden was told by his own pet economists to stop the spending. But he and his economically ignorant hacks just printed more money to fund their useless and counterproductive American Rescue Plan. Then they doubled down on two pricey boondoggles: the infrastructure bill and the laughably named Inflation Reduction Act, or Solyndra on Steroids. Inflation soared. Biden caused this mess. And the Dems can’t fix it without pissing off their codependent base.
In short, buy the dip, sell The Dip.