Here’s my video presentation for today, with a re-cap of the past week and advice on how investors can cope with election-induced volatility. My article below fleshes out the details.

Tomorrow is the big day. The world is holding its collective breath.

A disputed outcome in the U.S. presidential race that fuels street violence is a distinct possibility, in which case the markets probably would crater. Or we may get a decisive decision early in the evening of November 3, a scenario that would trigger a relief rally.

Regardless of who wins the White House, next year should usher in a new era of growth. First, let’s examine the near-term risks.

The global coronavirus pandemic has taken a turn for the worse and the recession isn’t easing. The markets have been volatile with downward momentum. Last week represented the 11th time in 2020 that the S&P 500 has closed more than 2% lower than where it started the week, versus an annual average of six times since 2010.

Last week’s decline was mostly generated by a spike in coronavirus infections and deaths in the U.S. and Europe, as well as the demise of a second fiscal stimulus bill in Congress. The technology sector, which has been in the vanguard of the pandemic-era rally, took it on the chin and fell 6.5%, making tech shares among the leaders of last week’s swoon. The S&P 500 fell nearly 6%, its worst weekly decline since March 20. The following table tells the story of a bad week for stocks:

The CBOE Volatility Index (VIX) has soared in recent days, underscoring investor uneasiness with the election, the coronavirus, and the recession.

Don’t get me wrong, the outlook for stocks remains positive over the long term. Whether Donald Trump or Joe Biden wins on Tuesday, we can expect fiscal stimulus and accelerating growth in 2021. However, until the pandemic and election are behind us, we’ll witness sharply negative reactions to unexpected headlines.

Election mood swings…

In our deeply polarized political environment, the next few days promise to be nerve-wracking. Major elections tend to produce short-term swings in the markets.

Since 1928, the S&P 500 on average has fallen roughly 1.00% on the day after a presidential election, as investors confront the unknown. A few declines have been larger, such as the 5.3% fall after Barack Obama’s victory in 2008 and the 4% decline after Donald Trump’s unexpected triumph in 2016.

However, history shows that the markets soon recover. Reviewing the S&P 500’s performance since 1928, the market ended on a positive note in 17 of the past 23 presidential election years (74% of the time), with an average annual return of 7.1%, according to the Schwab Center for Financial Research.

For long-term investors, immediate declines after elections are inconsequential. Economic and financial fundamentals are stronger drivers of the market than politics.

After America elected its first Black president 12 years ago, the alarmists came out of the woodwork to warn investors that the stock market would collapse due to Barack Obama’s “socialist” agenda. Many investors dumped their stocks in a panic, which is a shame, because they missed the greatest bull market in history.

A similar tale occurred with Donald Trump. In the immediate wake of Trump’s shocking upset of Hillary Clinton in 2016, many investors sold their stocks, convinced that Trumpian chaos would crush equities. It was the wrong move. In 2017, the S&P 500 generated a total return of 21.14%.

Here’s your takeaway: remain stoic. Keep your emotions in check and ride out the volatility that awaits us this week. Don’t make decisions based on your personal political bias. Stick to your investment goals. The table is set for long-term prosperity, as new technologies (such as 5G wireless) combined with massive fiscal stimulus (notably infrastructure spending) provide impetus for another bull market.

Worlds apart…

That said, don’t minimize the near-term risks. The worst danger right now is posed by the pandemic, which is contained in Asia but resurgent in the U.S. and Europe.

European stocks tumbled last week and they’re poised for further declines, as major countries in Europe reimpose lockdowns due to spiking COVID-19 infections and deaths. The following graphic paints a disturbing picture:

The global economy faces potentially disastrous consequences from the new lockdowns. In particular, Germany is the economic locomotive of the European Union. The ripple effects of the German lockdown are likely to reach these shores as well.

In the U.S., we got some good news as the government reported that third-quarter gross domestic product came in at an annualized growth rate of 33%. However, despite the rebound, economic growth remains 3.5% beneath its pre-pandemic level.

If you’re looking for a region that’s positioned to take off economically in 2021, consider Asia, especially China. Due to stricter management of the pandemic, coronavirus deaths per million people are vastly lower in that part of the world than in the West (see chart, with data as of October 30).

Select mega-cap tech companies based in China are appealing, as the world’s second-largest economy leads the way out of the recession.

Read This Story: From East to West: A Global Perspective

China’s ambitious “Belt and Road Initiative” extends through 60 partner countries, with infrastructure projects that will consume huge amounts of raw materials for several years. For growth-oriented hedges, increase your exposure to essential commodities such as copper and “rare earth” minerals. Also consider silver, which is vital in a wide variety of products and manufacturing processes. As demand outstrips supply, these commodities should soar in price over the long term.

Your “election trade”…

But where can you find immediate profits? That’s where my colleague Jim Fink comes in.

Jim is adept at putting volatility to profitable use. He knows better than anyone that for options traders, volatility generates greater opportunities for higher risk/higher reward trading.

In his capacity as chief investment strategist of Jim Fink’s Inner Circle, Jim has come up with a pre-election trade that’s positioned to reap a quick windfall. Make this one trade before election night, and you’re 95.96% likely to win. But you need to act now, while there’s still time. Get the details of Jim’s trade by clicking here.

John Persinos is the editorial director of Investing Daily. Send your questions or comments to mailbag@investingdaily.com. To subscribe to John’s video channel, follow this link.