For Investors: 6 Tips for Election Season Trading
Markets hate uncertainty — so it’s no surprise to see investors getting nervous as the election approaches.
To help you navigate the madness, I’ve compiled six of my most important election season trading rules.
Let’s dive right in…
- Markets are better able to discount politics when a clear winner is apparent. Prediction markets have proven to be good indicators of victors in the past. That price discovery process from all known information shows the statistically odds-on winner.
- The ‘race is getting closer’ narrative is popular among media to help keep public interest. A horserace helps their business of selling ads. Understand that media motivation is money.
- Republicans are viewed as more pro-business, but BIG stock market booms occurred under Bill Clinton and Barack Obama. The perception of Democrats overburdening regulations in those eras did not hold back stock surges.
- The President is not the CEO of the country. He does not have absolute power to institute policy and must work with other branches for a functioning government. The constitution intentionally limited the impact of any one person…even the President.
- Down-ballot races are extremely important in determining the makeup of the Senate and House of Representatives. The division of government plays a major role in what bills and laws are actually implemented.
- Predicting the election isn’t what pays. The most important thing is how the market reacts. Knowing the winner is not nearly as critical as predicting how the market will behave…
Bottom line: Markets will survive, no matter who wins in November. Opportunities will continue to exist. History has proven that market resiliency has endured all election outcomes. Our financial institutions are far greater than any single individual that gets elected to run our country.
Keep it In the Money,
Chart of the Day: Biotech storms back
I tried my best to stay away from the news last weekend after Trump was taken to Walter Reed. I just knew all the experts would come out of the woodwork to throw around wild speculations…
Luckily, nothing too serious has developed. The president appears to be doing alright as he fights Covid-19 — and he was even able to make a big re-entrance to the White House late Monday. The stock market is already moving on to the next hot item as the Nasdaq once again leads the averages higher to begin the trading week.
Of course, this story is likely far from finished. But we’re already beginning to see how investors are reacting now that treatments offered to the president appear to be working.
Just look at the biotech sector:
The iShares Nasdaq Biotechnology ETF (NASDAQ:IBB) hit new two-month highs, gaining more than 4% to kick off the new trading week. That’s significant since the biotech sector was one of the first groups on the Nasdaq to roll over after hitting new highs in July. Monday’s move helped push this name back above a key area, setting it up for a potential move back to its July highs.
Keep in mind, IBB has trailed the Nasdaq since the market bottomed in March (it’s up approximately 47%, while the Nasdaq Composite has jumped 65% off its lows). Perhaps this breakout marks the beginning of a “catch-up” move.
Trading Tip of the Day
Name all the stocks that were listed on the Dow back in 1960.
You can’t do it. Neither can I.
Investors tend to lose sight of the fact that major averages are actively managed. Every few years, new and better companies are selected to replace the laggards so the averages better represent the best stocks on the market.
As a trader, you shouldn’t get too nostalgic about the stocks that posted unbelievable runs higher over the past decade. Instead, be on the lookout for the next potential market-leader you can add to your portfolio.
— Greg Guenthner