Out of Election Chaos, Great Opportunities Will Develop
Here's my focus and strategy as an extremely contentious and emotional election plays out.
You've reached your free article limit
You've read 0 of 1 free Pro articles.
Market action is quiet on the morning of an extremely contentious presidential election. Betting markets are indicating that former President Trump has odds of 57% to 61.5% of winning, while polls indicate that it is a dead heat. Strength in the dollar and Bitcoin indicate that Trump has a slight advantage but chaotic action in equities and bonds illustrates a high level of uncertainty. Lots of folks are hoping for a certain outcome, but no one knows for sure what will happen.
The country has been deeply divided for a long time, which makes this election extremely emotional. Many investors are standing aside and waiting for a clear outcome before they commit to any new investment themes. The significant immediate risk is an unclear outcome that lasts for days and increases the already high levels of animosity and distrust.
While the presidential election will be the focus, what is probably more important is whether there will be gridlock with the opposite party controlling Congress. The Republicans are heavily favored to win control of the Senate, but the House is a toss-up.
If either party sweeps, then there will be much higher concern about the potential for inflation. A split government will make it difficult for either party to implement extreme policy measures, and that is what the market would prefer. It is more likely that the Republicans will sweep, but if that occurs, there will be very elevated worries about increased inflationary pressures.
My focus at this point is to be ready to trade the reaction to the election rather than bet on the outcome. If there isn’t an immediate decision and there is a selloff, I will view that as an opportunity to buy my favorite stocks with strong fundamentals.
We are very likely to see higher levels of volatility, and my inclination is to sell into strength and buy weakness. I’m primarily looking at smaller-cap stocks that have had relative strength recently. The Russell 2000 IWM outperformed on Monday, which is a good sign.
Get ready for an emotional day, and don’t listen to early rumors about the election outcome. Out of chaos, great opportunities will present themselves.
At the time of publication, Rev Shark had no positions in any securities mentioned.
