What We Know About The Post-Election Outlook So Far…
As I write this, the election remains too close to call. But one outcome appears certain — there is unlikely to be a mandate for Democrats. This seems to be leading to a rally in stocks and bonds.
Last month, analysts started writing about a blue wave. As The New York Times explained in its post-market analysis, “A scenario in which Joe Biden becomes president, Democrats claim the Senate and keep control of the House is now considered unlikely. Some investors had been pricing in a so-called blue wave, on the assumption that it would lead to a major stimulus package.”
Based on what we know now, it appears Republicans will retain control of the Senate. And that means it’s much less likely that a potential Biden administration will have the ability to push through a big spending plan to bolster the pandemic-hit economy.
As Holger Schmieding of Berenberg Bank put it in a research note recently, the smallest expected stimulus would come if a President Biden had to work with a Republican Senate.
“A divided government does not mean we won’t have a fiscal stimulus package,” said Tom McLoughlin, the head of Americas fixed income at UBS Global Wealth Management. “But it will be a shadow of what might have happened.”
Despite the lack of a major stimulus, stocks are rallying on the belief that there also won’t be major tax hikes or significant legislation increasing regulation in any sector. Bonds are rallying and interest rates are falling as investors realize there won’t be a large amount of deficit spending since several multi-trillion-dollar stimulus bills are unlikely.
There are some losers. Stocks of companies exposed to alternative energy, especially solar, and companies that could benefit from large construction efforts are down.
In my opinion, the election provides a bullish outcome for the stock market. A divided Congress limits the possibility of sweeping changes in the economy. That helps businesses plan and avoids large surprises.
Without runaway spending, interest rates should remain low since the market can absorb the amount of bonds that are issued. This is also bullish for the stock market and consumers who benefit from low rates.
Healthcare is one of the “winning” sectors, as it is unlikely that we’ll see large changes to the insurance market or increased government regulation. That is boosting stocks like Danaher Corporation (NYSE: DHR), a medical equipment maker.
I recently released a trade recommendation on this stock over at Income Trader. As you can see in the chart, the stock is on an Income Trader Volatility (ITV) “buy” signal.
Action To Take
Over at Income Trader, I identified a short-term options trade on DHR, one that expires in about two weeks. This limits exposure while earning high income for a short-term trade.
While it shouldn’t be your sole focus, it helps to have the larger macro picture working in your favor. The fact that my award-winning indicator is showing a “buy” signal only confirms the bullish case.
These are the types of trades you should be looking for right now.
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