This week, the Alpha Algorithm takes a break as no single new stock has been selected by the minimum number of required strategies.
This unusual state of affairs likely reflects the fact that U.S. stock markets remain on edge in anticipation of the outcome of the U.S. presidential elections.
Let’s review the current state of play.
It is abundantly clear that investors would view the election of Donald Trump as U.S. president negatively — at least over the short term.
Last Friday’s sharp sell-off in the U.S. stock market, following news that FBI Director James Comey had sent a letter to Congress saying investigators had reopened an investigation into Hillary Clinton’s emails, provided a hint as to what you can expect if Trump pulls off a victory.
After the news broke, the Dow Jones Industrial Average promptly plummeted from a peak of 18,255 to a trough of 18,097.
The VIX — or the “Fear Index” — also spiked to a one-month high.
This week, global stock markets have continued their sell-off as Trump has gained strength in the polls, and volatility has continued to spike.
One of the golden rules of investing is that markets hate uncertainty. And fear of the potential uncertainty following a Trump victory is nothing new.
Economics research firm Macroeconomic Advisers has found that there has been a consistent inverse correlation between the probability that Trump wins the election and a fall in stock prices throughout this entire election cycle. And it is predicting an 8% drop in the S&P 500 if Trump wins.
The left-leaning Brookings Institution projects that stock markets in the United States, the United Kingdom and Asia would plummet by 10-15%.
As of today, the conventional wisdom remains that Hillary Clinton will emerge victorious in the U.S. presidential election next Tuesday. However, that conventional wisdom is coming into question with each passing day.
There are short-term ways to profit from a potential Trump victory and I outlined them in this week’s issue of The Global Guru.
But as far as the Alpha Algorithm is concerned, we are going to sit this week out.
Portfolio Update
You were stopped out of Facebook Inc. (FB) this morning for a small loss.
Sincerely,
Nicholas A. Vardy
