I took this photo in the funky town of Truth or Consequences, New Mexico. The poster hung in an equally funky antique store called Junkology.
Route 66, also known as the Will Rogers Highway, the Main Street of America or the Mother Road, was established November 11, 1926, exactly 94 years ago.
The communities that the road passed through became prosperous due to the growing popularity of the highway.
Simultaneously, many who traveled that highway failed to find the financial security they sought.
Route 66 serves as a metaphor for the stock market versus the economy.
As John Steinbeck wrote in the “Grapes of Wrath,” "66 is the mother road... the road of flight". His intention was to point out the wealth inequality between the migrants who traveled the road to find work, and those who prospered selling goods and services to others who could well afford them.
With the pandemic, we have a similar inequality. As the stock market recently climbed to new all-time highs, many Americans continue to suffer.
In the second quarter of 2020, the share of net wealth in the U.S. held by the top 10% increased.
Meanwhile, 41.4% of Americans are classified as low income.
Nonetheless, the stock market not only reflects the wealthy, but it also mirrors the ongoing optimism that makes Wall Street the new Main Street of America.
Many analysts have talked about the current rotation out of big tech into small caps or value stocks. We see the same rotation.
The prospects of a vaccine making way for businesses to reopen, plus a Biden presidency making way for more stimulus money to help those who have lost jobs and businesses, has helped fuel the rotation.
As the holiday season is upon us, we can take the Route 66 metaphor one step further.
Without more stimulus money possibly until February 2021, surveys indicate consumers will spend less than they have during previous holiday seasons.
This could impact big tech as November-December hosts Black Friday and Cyber-Monday, when tech generally thrives.
Again, the wealthy will not be impacted. So, what does that mean for the market and value seekers?
Value investors seek businesses trading at a share price that is considered a bargain based on the assumption that as time goes on, the market will properly recognize the company's value and the price will rise.
This relates perfectly to the prevailing hopes that as time goes by, many Americans that have been hit the worst, will see their situation improve with more stimulus money in their pocket and as jobs return as businesses re-open.
As a result, optimism can turn to an improved economy, which should in turn make many stocks that appear undervalued in the market now turn around, and do well in the beginning of 2021.
A couple of weeks ago I wrote a column spelling out a few potential scenarios depending on how the presidential election turned out and how the virus would affect U.S. businesses.
One that looks more likely now is:
“Depending how much investors decide they like/dislike the election results, another theme is that tech and NASDAQ have topped, but the decline in price will be gentle, while the money rotates into small caps, small-cap growth stocks, transportation and financials.”
One caveat is if the market cannot hold up, it could turn out more like Route 66, the essence of Americana…road of dreams and hopes, only to become a National Scenic Byway or the stuff of legends.
Michele 'Mish' Schneider currently serves as Director of Trading Research and Education at MarketGauge.com. She writes and produces daily market analysis in "Mish's Daily", and serves as a developer and trading mentor in several of our trading services, drawing on her 30+ Years of Trading and Teaching Experience.
Mish is a former floor trader on several New York Commodity Exchanges, including Coffee, Sugar and Cocoa NYMEX and FINEX in NYC. While on the trading floor Mish also served as a market analyst for two of the largest commodity trading firms at the time - Continental Grain, and Conti-Commodities.
Mish also wrote the best-selling finance book, Plant Your Money Tree; A Guide To Growing Your Wealth.