The Right Way For Investors To Handle This Election Season
It turns out that many of my friends that had no prior interest in stocks are now “day traders.” Some even dabble in options. A few others that were handed early retirement pensions due to the coronavirus are trading stocks as a new hobby.
The surge in retail investors lately has been impressive and a little unexpected. But it’s been ushered in by downtime from the coronavirus, and the commission-free trading that the majority of brokerages now offer. This was spearheaded by the popular retail brokerage app, Robinhood.
New traders and investors have come in droves to try their hand at striking it rich. For instance, TD Ameritrade alone added a record 661,000 new retail accounts in the second quarter. That was after the brokerage added 608,000 in the first quarter.
As my friends now more eagerly want to talk about stocks (and how great they’re doing trading them), one comment — more likely a concern — keeps creeping into the conversation… the upcoming presidential election and its impact on the stock market.
There’s no doubt that this will be a contentious election (again). Rumblings from both sides — and all these new traders — would have you believe that stocks will perform terribly should their opponent get elected.
How The Election Could Affect The Market (Or Not)
But here’s the thing… the market doesn’t really care who you vote for. It will simply digest the news and move on.
Take the last presidential election for example…
When President Trump shocked the world and won the 2016 election, U.S. stock futures plunged. S&P 500 futures tumbled 5%, hitting a limit designed to halt further drops, and the Dow futures were down as much as 900 points.
If there’s anything the markets don’t like, it is uncertainty.
Headed into the 2016 election, it was a near certainty (according to every poll, political talking head, and media outlet across America) that Hillary Clinton would become the 45th president of the United States.
When that didn’t happen, the markets initially tumbled. But by the time the markets opened the next day in the United States, the major indexes had already recovered most of those losses.
This time around, we could see market volatility heighten as the market digests the winner and what it might look like for the economy and publicly-traded corporations.
But I’m confident that regardless of who wins, one thing is certain… Technology companies will continue to innovate and produce smaller, faster chips. Healthcare companies will continue to develop new products and solutions for patients. Pharmaceutical companies will continue to churn out medicine, develop new drugs, and pioneer new vaccines.
In other words, companies will continue to prosper and generate cash flow.
Now, I don’t want to suggest that presidents are irrelevant to markets and the economy. Their policies and actions can affect commodity and equity prices as well as interest rates, like entering a war or implementing subsidies or tariffs on goods. But we must approach the market with some level of objectivity. We know that investor behavior can make stocks march higher than many expected. After all, it is the emotions and behavior of investors that create part of the momentum equation.
As we make our way towards election day, don’t let the election — or the election outcome — be the guiding force for your trading strategy. Remember, we want to leave our emotions out of investing. We will stick to our buy and sell signals, and continue to exploit great trade opportunities.
If we stick to our strategy, leave politics (and our emotions) aside, we should continue to see wonderful success.
In the meantime, if you’re like most traders or investors, then you can’t be too sure of anything these days…
That’s where my colleague Jim Fink comes in. Because if his track record says anything, then it pays to listen to what he has to say.
He recently made a bold statement, telling a select group of readers that he’s found one trade that is completely “election-proof”. And now he’s going to give it away, for free.
It’s all happening on Thursday, Oct. 29th, at 1pm EST.