Making Money No Matter Who Wins
November 1, 2016, 4:31 pm
While there’s no question we’re in the midst of one of the most historic presidential elections in recent memory, its impact on Wall Street has blown even seasoned experts away. Rarely in my professional career have I ever seen investors this paralyzed by the unknown, fleeing for the sidelines until a victor is known. The environment is riddled with uncertainty, and what does the market hate more than anything? You guessed it: the unknown.
Luckily, we won’t have to wait much longer for an answer as we’re just one week away from Election Day. In the meantime, I continue to hear from my subscribers and even people on the street who tell me they feel powerless against the volatility this election has created. I understand why so many feel this way and that’s why I’m reaching out to you today.
While the days leading up to November 8 will no doubt be rocky, now is exactly the time when you want to stay in the game and prepare for when attention inevitably moves from the election back to matter at hand: investing. To help you navigate the headlines and make the most of this historic environment, I’m teaming up with my Breakout Stocks and ETF Trend Trader co-editor Matt McCall to bring you a special election series.
Starting today and continuing through and beyond Election Day, we’ll be in touch regularly with exclusive content that puts the media rhetoric into perspective and gets you ready for the biggest post-election opportunities we already see brewing. It all leads up to an exciting members-only event that Matt and I will host on November 16 that will position you for a profitable end to 2016 and beginning to 2017, regardless of who will be moving into the White House come January.
We’ll have more on that later. For now, we want to focus on how we can manage the volatility at hand. While the majority of the polls still have Hillary Clinton ahead in the race, her lead has narrowed drastically. In last week’s ABC News/Washington Post survey, Donald Trump trailed Clinton by 12 points. The most recent poll that was released this past Saturday shows the Clinton lead down to only 2 points – even more surprising when you consider that the poll was taken before last Friday’s news that the FBI is looking into more of her emails. Wall Street still seems to favor a Clinton victory in this tight race and that became even more evident with the downside action on Friday. If anything, the FBI investigation increases the uncertainty around the election and could lead to investors hording cash until after November 8.
The stock market indicator adds another element of uncertainty. During election years, the S&P 500’s performance between July 31 and October 31 is typically one of the best predictors of which party will win the presidency. If the market is up during that time, it bodes well for the incumbent party (in this case, Democrats) and vice versa. Since 1944, the stock market indicator has been correct 80% of the time, and with the S&P 500 closing out October in negative territory yesterday it points toward Trump as the next president.
The bottom line is this: There is no clear-cut winner yet, and that has investors taking a step back from the market. Here’s the other and more important bottom line: When it comes to making smart investment decisions, it really doesn’t matter who comes out on top.
Of course there will be sectors that out- or underperform as a result, but over time the performance of the market comes down to the economy, the consumer and individual company profits. Sure, the president is considered the most powerful person in the world. But when all is said and done, our founding fathers set up a government of checks and balances, and the strength of our country is determined by an entire group, not just one individual.
To illustrate this point even further, let’s take a step back for a moment. When President Obama was elected eight years ago, it caused a large number of Republicans to pull their money out of the market in “protest.” The thing is, basing your investment decisions on a political belief is a terrible strategy. Regardless of what you think about our current president, there’s no denying that the market is up huge since he took the Oval Office and those “protestors” only ended up hurting themselves.
This cycle should be no different. With the country pretty much split between the two candidates, it’s inevitable that roughly half of the nation will be upset with the final result. But that doesn’t mean the stock market is going down so you should liquidate your portfolio and dig a hole in your backyard to hold your cash. In fact, we believe you should do the exact opposite. Once we know who will be our next president, the best course of action is to use that certainty as an opportunity to put more money in the market and prepare for the eventual relief rally that should send stocks higher into 2017. After all, the indexes remain near all-time highs and earnings are finally starting to show growth again.
We hope this kick-off to our election series has helped to give you some peace of mind that we can still make money no matter what the stock market does before or after November 8. In the meantime, we want you to be prepared for increased volatility leading up to and immediately following the election. It’s simply inevitable given the mood on Wall Street and the country in general. The key is to view it all in the proper context. We won’t be getting wrapped up in the headlines, rumors and “what ifs.” Instead, we’ll keep our focus on the facts and sound strategies to help us navigate what lies ahead. We’re actually very excited about what’s to come.
We’ll be in touch soon with your next bulletin, where we’ll take a closer look at how elections have historically impacted stock trading. Thanks for reading!