Stock prices are going to be volatile as the Presidential election is just two-weeks away. Since we are at the height of political silly season, neither side is likely to give an inch and stimulus, whether it’s needed or not, will likely be sidelined until the election is over.
Wall Street wants its money. Every time news breaks that the Democrats and Republicans are close to a deal, equity prices soar. Every time one side or the other stomps their feet, cries about not getting their way and takes their ball home because they don’t want to play anymore, prices crash, like Monday’s start to the week.
Ongoing COVID news is sliding into the negative column too. Infections appear to be on the rise across many states, overwhelming some. This is hurting sentiment as well.
The lack of progress on more money from congress and COVID-19 hit stocks hard on to start the week. It’s possible and probably likely that the Big 3 indexes, the DOW, S&P 500 and NASDAQ continue to drop and make contact with their respective 50-day moving averages.
We could see the DOW at 27,984, the S&P at 3,401 and the NASDAQ at 11,260. The benchmark indexes should catch support at those levels. If not, a trip to test the late-September lows is likely.
Stocks are probably going to swing wildly in the days leading up to the election on November 3rd and beyond if there isn’t a clean and clear result. It might be an ideal environment for traders but frustrating for longer-term players.
Investors looking to protect their portfolios from potential drawdowns might consider an inverse index ETF like ProShares Short S&P500 (SH) or possibly shorting index futures; although, futures trading is highly leveraged and extremely risky.
Wall Street appears to be positioning itself for a Joe Biden win with Green Stocks at the top of the leaderboard again. Despite what the pre-election polls say, we’d rather rely on the only poll that counts, actual votes. Jumping in front of an expected outcome is speculation, not investing. There will be plenty of time to position your portfolio for “Biden” or “Trump” stocks after the election is over: four-years to be precise.
In uncertain times, we live by the wisdom of a mentor, “it’s better to be out of the market wishing you were in than in the market wishing you were out.” Quite frankly, we have no idea what to expect in the next two-weeks and would rather be spectators. Without conviction, we are just guessing and that’s a recipe for disaster.
That means, once again, we will avoid highlighting a company for investing consideration. There is a good chance companies we feel are attractive today could be more attractive in the next two-weeks to a month.
We will be making our prediction of who will win the election in next week’s newsletter, make sure you look for it. We’ll be using the same methodology (analyzing Google Trends on a swing state by swing state basis) as we did in 2016 when we saw a Trump victory coming contrary to the national polls.
We will feel a ton more comfortable when politics move to the sidelines and we can focus on policy, profits and prices.