At the current moment we can see that price on the daily time frame has pulled back near the 3400 level. A level that was once resistance is now trying to hold has support. With the constant election news and Covid-19 looking like it could get worse all while our politicians argue about another stimulus package, price could end up going much lower or much higher. Lets break down a few scenarios that could happen.
If 3400 holds as support we could see price easily move back up to all time highs at 3577. Since we are less then 200 points away this could easily happen in a few weeks depending on how price moves. With the V shaped recovery we have seen since the Covid-19 pandemic, we are clearly in a bullish trend overall. Now does this mean we will go back to break all time highs any time soon, no. It simply means the overall trend is up and the next major resistance level is 3577.
But what if we don't get another stimulus bill passed? At the current moment the unemployment rate is sitting at 7.9% or 12.6 million Americans who are unemployed. Before the Covid-19 pandemic the unemployment rate was hovering around 4% or roughly 6 million unemployed workers. At the height of the pandemic we saw an unemployment rate of about 14% with close to 20 million Americans out of work. Now we have obviously seen a steep decline of unemployed workers which has been widely due to the roll back of Covid-19 restrictions.
Many of these people received stimulus checks that more then likely helped stimulate the economy to a certain degree. Without another stimulus bill/program we could see more businesses fail and more consumers go with out. When consumer spending drops we see many of the companies who are geared toward the everyday consumer begin to fail. Now with all the help the FED has been injecting I would be surprised to see to many large companies fail. Without this stimulus check we could easily see a large amount of companies take a hit this winter especially with the holiday season. If these publicly traded companies take a hit we could easily see the S&P 500 take a hit and this V shaped recovery/bullish trend could start to slow down.
Now on to the elephant in the room, the election. Regardless if you are a political person or not this election is gearing up to be one for the books, making it almost impossible to ignore. With that said what concerns us in this blog is taxes. We have one candidate that would increase taxes on larger businesses and individuals who make x amount and another candidate who takes a less is more trickle down economics approach. If we see these larger companies hit with a huge tax rate, it could have a negative effect. Due to the fact these companies will start cost cutting which means more layoffs and will usually mean a decline in productivity leading to a possible decline in share price. Not only share price but if the consumer is without a job/money there will be nothing to consume meaning other companies will effected. As we know the S&P 500 is an index and if the average share price starts to fall we could see a decline in the S&P 500.
In this blog we touched on a few different topics that "could" happen. We stress could, just like we set up a few different scenarios every morning we need to do so with what could happen in the future. At times that means looking at the political landscape and all the current events. Even though the current trend is moving up, its good to look at turning points and be ready for anything.
What do you think, will price keep moving up or will we see a pull back?