By: Costas Bocelli — November 5, 2020
Trump or Biden? Here’s Why it Doesn’t Matter for Investors
As of this writing, it’s the day after the US election, and a winner has not been declared.
The Electoral College is 224 for Biden and 213 for Trump.
The winner will need to get 270 in order to declare victory.
Several battle ground states are still tallying the votes including Pennsylvania, Michigan, Wisconsin, North Carolina, Georgia and Nevada.
Some of these vote totals will likely result in slim margins of victory. So you’d expect recounts and even court battles over these electoral votes.
Yesterday morning, I sent you a quick video about the election situation and told you, as an investor, not to worry about who wins presidential election.
You see, it could take days or even weeks before the election is settled. You should expect plenty more volatility ahead.
But let me tell you this…
The stock market is likely to be heading higher over the medium to longer-term.
It’s crucial that your portfolio is positioned to take advantage of the next big move higher.
You see, if Trump wins, it’s positive for the stock market.
And if Biden wins, it’s positive for the stock market.
Let me explain…
For sure, if we get a contested election and the lawyers get involved, thing could get a bit messy in the short-term.
But eventually, this will get sorted out. So any near-term weakness should be viewed as a buying opportunity.
Here’s three reasons why it doesn’t matter who win the White House:
First, the most likely outcome of the general election will be a divided U.S. government. There certainly will not be a Red Wave. And a Blue Wave, or a Democratic sweep, looks equally unlikely.
The Senate is setting up for the Republicans to retain a slim majority edge.
The prospects of any major policy changes happening over the next two years are dim. That means no changes to taxes, capital gains or to the private healthcare system.
There is one meaningful program both parties will agree to: more fiscal stimulus.
So Mr. Market will be happy to see political gridlock and trillions of dollars being pumped into the economy.
The second reason the election doesn't matter to the market is -- seasonality.
With the start of November, we have officially moved into the seasonally strongest half of the year that lasts until the end of April.
Since 1950, stocks performed almost 7% better in the November-April period than the May – October period.
Of course these are average returns over a 70 year period, so in any given year, there could be dispersion to the historical trend.
In fact, last year the Dow Jones Industrial Average gained +2% in the May–October period. But it declined -10% in the November – April period.
In other words, the weakest period of the calendar outperformed the strongest by 14%.
Historically speaking, the market has the wind at its back.
Add in that it's an election year and the likelihood of a divided government... and conditions are favorable for stocks to move meaningfully higher over the next several months.
And lastly, U.S. Equities are in a relatively strong position.
Of the six broad asset classes, they sit atop our long-term relative strength rankings, just above Fixed Income, the second-strongest.
And yet, right now we find supply in control of the stock market.
The NYSE BPI, our primary barometer of risk for U.S. Stocks, is in a column of O’s. So we find the stock market in a defensive posture.
(Click on any image to enlarge)
We also find that a majority of the 45-industry groups that are tracked in Sector Prophets Pro, our data analytics product, showing supply in control.
Now here’s the thing…
When U.S. Equities is the top ranked broad asset class (as it is now)... and our medium to longer-term breadth indicators turn weak (as they've recently done)...
Historical data has proven that this is a buying opportunity with positive returns looking forward.
In other words, investors should give U.S. stocks the benefit of the doubt, and look to add strong stocks within strong sectors.
This goes double if we see increased volatility amid election uncertainty.
Remember, it really doesn’t matter who wins (from a market perspective) because the government will be in gridlock for at least the next two-years.
Investors looking to put investable cash to work should look to the strongest sectors of the stock market.
That means the most attention should be in securities that reside in Technology, Consumer Discretionary, Communications Services and Health Care.
Those are the four strongest broad sectors on a relative basis.
In this past Monday's edition of Sector Focus, our premium investment newsletter, we recommended six exchange-traded-funds that have exposure to these sectors.
And all six of these investment ideas possess positive traits of technical strength.
It wouldn’t be fair to our paid subscribers to Sector Focus to reveal all of the investment recommendations.
But because you’re a loyal True Market Insiders reader, I’ll leave with you with one of them.
Within the Technology Sector, we recommended the Ark Next Generation Internet ETF (ARKW).
If you want access to the other five recommended ETF’s, give us a call at: 754-229-3325 and ask to try out Sector Focus.
Until next time!