How to Invest as The Traditional Order Crumbles
It doesn’t matter whether you support Donald Trump or Joe Biden. Here’s what you need to understand and it applies to Democrats, Republicans and independents alike: Chaos is the new normal.
The daily headlines make it clear that the old norms are crumbling. Below, I’ll unveil a means of not only coping with these turbulent conditions but also profiting.
Market volatility is back with a vengeance. Sure, options traders love volatility, but it causes agita for average individual investors.
The three main U.S. stock market indices cratered Wednesday, as political turmoil worsened in Washington and at least 22 states reported increases in new COVID-19 cases. The Dow Jones Industrial Average fell 525.05 points (-1.92%), the S&P 500 slid 78.65 points (2.37%), and the tech-laden NASDAQ plunged 330.65 points (-3.02%).
Stock futures fell during early morning trading Thursday, after comments by President Trump on Wednesday evening that he would not commit to a peaceful transition of power if he loses the election.
We might not know who won the White House (or perhaps even the Senate) until long after the voting. That outcome would roil the stock market.
This is not a red state/blue state issue. It’s not liberals versus conservatives, or Democrats versus Republicans. It’s not even about Biden versus Trump. It’s about uncertainty…and Wall Street hates uncertainty.
The behavior of the CBOE Volatility Index (aka “fear gauge”) shows growing anxiety among investors. The VIX jumped about 8% on Wednesday. Take a look at the movement of the VIX, compared to the S&P 500 Index, over the past month (as of market close September 23).
Readers often ask me the question: Does the stock market perform better under an administration run by Democrats or Republicans? Since 1929, the total return of the S&P 500 has averaged 57.4% under the full presidential term of a Democratic president, versus just 16.6% under a Republican.
But you should take that data with a grain of salt. Several variables go into the equation. During a party’s tenure in the White House, was there divided or unified government? Were significant external factors in play, e.g. a major war? Did power change hands or was the incumbent re-elected? The connection between a certain party in the White House and financial prosperity doesn’t represent a direct causal link.
Wall Street bets on both horses…
The market is an economic barometer, not a political one, and stocks move according to fundamentals. Don’t make investment decisions based on your party affiliation or electoral preferences. You should develop a strategy that’s designed to last beyond a single election cycle. When Obama was elected president in 2008, a lot of investors were persuaded by fearmongers to dump their stocks. They missed the greatest bull market in history.
Republican President Calvin Coolidge once said: “The chief business of the American people is business.” Despite policy differences, Republicans and Democrats are generally friendly to the business and financial communities. Corporate America and Wall Street donate generously to both parties. When an election is over, wealthy donors to the winning party are nominated to key positions of power.
Is the market rooting for Donald Trump or Joseph Biden? That’s the wrong question to ask. The market cares more about who’s leading the Federal Reserve. Whether it’s under Trump or Biden, chances are the U.S. central bank will keep interest rates low, which is manna for stocks.
However, in the run up to the November 3 election, catastrophe could be lurking in the wings. Corporate debt levels are toxic, asset prices are inflated, COVID-19 is surging, and the recession is deepening. The trigger for a stock market meltdown could come from anywhere, at any time. Brace yourself for wild market swings. The rally we’ve enjoyed since late March could turn out to be a “bear market rally.”
The death of Supreme Court Justice Ruth Bader Ginsburg and President Trump’s aggressive attempt to install her replacement before November’s election, combined with the persistent pandemic, are exacerbating investor fears.
As members of Congress fight hammer and tongs over Ginsburg’s replacement, little else will get done in Washington this year. We won’t see a new fiscal relief package and any requests for additional industry bailouts will be dead on arrival. Unemployed Americans are on their own.
Even worse, it could take weeks and maybe months to count the record number of mail-in ballots and declare a presidential winner. Unless Biden scores an early and obvious blowout, Trump is likely to challenge the results through several means, including the courts. In this hot-tempered election year, we might even see street violence.
Not knowing the winner of the presidential race, for an extended period, is a nightmare scenario for stocks. The good news is, we’ve put together a special report, called Reset 2020, on how to cope with the chaos that I’ve just described.
America faces a “reset” of our economy that will revolutionize the way we work, save and invest. If you want to survive this reset, you must get into the right kinds of investments now. We’ve determined a new path to wealth, based on an unstoppable economic shift. To access our report, click here.