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As we approach the Presidential election, uncertainty is once again at the forefront of investors' minds. The current economic environment, marked by elevated inflation, geopolitical tensions, and fluctuating market conditions, adds complexity to an election already laden with divisiveness. While we cannot predict the election outcome with certainty, it is crucial for investors to prepare for different scenarios to position their portfolios accordingly. Put Politics Aside – Focus on the Markets We all understand this is a divisive atmosphere and a heated election. To effectively navigate the election, it is essential to set aside any political bias and objectively assess how different election outcomes could impact the financial markets. Let us break down what to expect before, during, and after election day, and how each candidate's potential victory could affect the flow of money. Before the Election (Nov 2th-4th) The days leading up to the election are likely to be characterized by caution and volatility. Investors may reduce exposure to stocks, particularly in sectors most sensitive to policy changes. Historically, the markets have seen elevated volatility ahead of elections. For example, in 2020, the S&P 500 experienced a sharp 7% decline in late October, as uncertainty loomed over how policies would affect taxes, healthcare, and energy. Leading up to the 2024 election, we could see a similar pattern. With heightened political tension and polarized public opinion, some investors may prefer to sit on the sidelines until results are clearer. Expect increased volatility, with the VIX potentially spiking 10-20% as options markets price in the uncertainty of both potential outcomes. Defensive sectors such as utilities, consumer staples, and healthcare could see a boost, as investors seek safer harbors amidst the uncertainty. | ||||
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| The Day and Night of the Election (November 5th) Election day itself will be a calm before the storm, with trading volumes likely to dip as investors wait for the results. The real action will begin as polling results come in. The futures markets, which trade overnight, will be the first to react to any early indications of a winner. The 2016 election saw a dramatic scenario playout in the futures markets as Clinton was a heavy favorite. As results trickled in, the S&P futures initially plummeted upon Trump's unexpected victory, only to stage a massive rebound the following day. Investors should expect a much calmer atmosphere election night, but if there is a clear early leader, we can expect the following: If Trump Wins: A Trump victory could lead to a quick bump in equity markets, especially in sectors like defense, fossil fuels, and financials, as the market anticipates continued deregulation and a business-friendly tax environment. If Harris Wins: A win for Kamala Harris could initially trigger a decline in equities as the market digests the potential for higher corporate taxes and increased regulation in sectors such as energy and finance. The Days and Weeks After (November and December) Regardless of the initial market reaction, the weeks following the election will be critical as the "smart money" begins to position itself for the years ahead. Historically, the market has tended to rally in the aftermath of a clear election result, with the S&P 500 gaining approximately 5% in the month following the 2020 election. This trend could repeat if there is a decisive outcome. If Trump Wins: In a second Trump term, we could see a continuation of the pro-business agenda, with further tax cuts or deregulation on the table. Sectors such as energy, financials, and industrials may perform well, while trade tensions, particularly with China, could lead to heightened market volatility. Watch for defense stocks and traditional manufacturing companies to benefit from increased government spending. If Harris Wins: Harris's policies are likely to prioritize clean energy, healthcare, and technology. Companies involved in renewable energy, electric vehicles, and green infrastructure would likely see inflows as government spending in these areas ramps up. Conversely, traditional energy stocks and large banks might face pressure due to potential regulatory changes. Additionally, gold and other commodities could see upward movement as investors hedge against the risk of increased government spending and rising inflation. The Wildcard – A Contested Election A major risk for this election is a prolonged period without a clear winner. If there are delays in determining the result, or if legal challenges arise, markets could experience heightened uncertainty and a significant sell-off. During the 2000 election, the market saw increased volatility as the results were contested for weeks. If a similar scenario occurs in 2024, expect the VIX to stay elevated, with defensive stocks potentially outperforming. Bottom Line The 2024 Presidential election adds another layer of uncertainty to an already complex market environment. While political preferences may differ, investors must focus on market implications rather than personal beliefs. Both Trump and Harris present unique opportunities for certain sectors, though each carries different risks. In the short term, a Trump win could spur gains in traditional sectors such as defense, energy, and finance, while Harris's policies could favor renewable energy, healthcare, and technology. For investors, the goal is to prepare for either scenario, keeping a balanced approach to manage risk while capitalizing on sector rotations. No matter the outcome, opportunities will arise for those ready to adapt to new policies and market dynamics. Investors should prepare for heightened volatility leading up to election day, with a game plan that positions their portfolios to thrive under the next administration. The Best Way to Trade This Election. To help you do that, I've just released The Zacks 2024 Election Stock Report. In it, I share specific recommendations to profit from either election outcomes: 6 if Trump wins, 6 if Harris wins. Each pick has substantial profit potential. Investors that act quickly stand to reap the biggest benefits. I released similar reports before the 2016 and 2020 elections. My recommendations gave investors a shot at gains of +185%... +196%... even +277% immediately following the election.¹ With the way the market looks right now, the picks in this year's report could be just as lucrative. You're invited to download the 2024 Election Stock Report now. But don't delay. We're only making it is only available until midnight election night Tuesday, November 5. Click here to claim your copy of the Zacks Election Stock Report » Good Investing,
Jeremy Mullin is a Stock Strategist with more than 20 years of experience as a professional trader. He is the editor of Zacks Commodity Innovators and Counterstrike. | ||||
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