Let the mudslinging begin…
Election Day is fast approaching. And no matter what your political views, one thing is certain… The outcome is sure to cause volatility in the markets.
That’s because uncertainty almost always means volatility. And the U.S. presidential elections are at once the most uncertain and highest-impact influence on the stock market.
The results fundamentally alter the direction of the country’s economy for the next four years. How does each party’s policy affect a specific business, or industry? How will taxes change? And so on…
But in focusing so much on November 3, investors miss out on a key dynamic that actually brings clarity to all this uncertainty.
In today’s issue, we’ll explore that dynamic… And show you how to take advantage of it while most uninformed investors are biting their nails ahead of Election Day.
But first, I want to take a look at how the election jitters are affecting the market right now…
Why We’re in for a Weaker September
September is historically a weak month for markets. The average SPY return for each September since 1990 is -0.34%. So far, this year is no different.
The S&P 500 is down about 8% this month so far. That’s quite a reversal from July and August, which posted massive gains of 6% and 7% respectively.
But remember, these gains coincided with huge ETF buying. And I told you that’s a tipoff that markets were likely to get volatile.
So, September is generally a month to be a seller of the broad stock market. But what about election-year Septembers?
As it turns out, election years since 1990 performed even worse, returning -0.85%.
In other words, election-year Septembers are actually between 2.5 and 3.5 times worse performers than non-election-year Septembers since 1990. But why?
Big Money Calls the Shots, Not the Election
The main reason is big money investors don’t like uncertainty. So they typically sell stocks headed into elections. But we can actually see this dynamic in action with our Big Money Buy/Sell Index (BMI).
Regular readers know the BMI is my proprietary market timing indicator. Using decades of data and refinement, it tracks huge investment capital moving in and out of stocks. The index falls as the big money sells, and rises as the big money buys back in.
And right now, the BMI is trending down towards its “sweet spot”…
Especially during election years, though, we tend to see a falling BMI heading into the election and a rising BMI shortly after.
Simply put, stocks get sold into the uncertainty of an election day and bought soon after.
This isn’t some one-off phenomenon, either. Take a look at the three most recent elections…
Notice how the yellow line plummets before and rises after?
Each time, that was big money fleeing from stocks before Election Day. Then, once it was known who won the presidential election, they plowed back in.
Is that happening now? You tell me…
Looks eerily similar to the last three elections, doesn’t it? And as we showed on Friday, this pattern was present in all other presidential elections since 1990.
All this points to a great setup ahead for stocks…
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We have the historically weak month of September…
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We have an election year, making this September likely worse than non-election years…
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We have big money historically trying to side-step political uncertainty…
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And we have the relief buying that typically happens after election day…
In short, it’s a good time to have cash… and a list of stocks you’re itching to buy.
Outlier Opportunity Knocking
If you have some big winners in your portfolio, consider taking some of your chips off the table so you can take advantage of lower prices.
Look for strong stocks with great businesses, strong sales and earnings growth, big profits, low debt, and a strong history of big-money buying. When these types of stocks go on sale – the ones I call outliers – that’s opportunity knocking. We have history suggesting the big money will get back in after the dust settles.
Outlier stocks on sale are gifts handed to us by the volatility of political uncertainty. History suggests we should let the political worry of others become your investment confidence…
I am. Are you?
Patience and Process!
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Jason Bodner
Editor, Palm Beach Insider
P.S. As I scan the markets each day, I add and eliminate candidates for my post-election buy list.
A lot of research goes into picking these names. But the #1 thing is my unbeatable stock-picking system.
This system has handed my readers multiple stock ideas that have doubled, tripled… even quadrupled their money in a short span. And we’re about to enter a period where my watchlist will trade at a steep discount…
To secure your access to these picks, and learn more about how my system cuts through the white noise of the market, click here.