Will the Contentious Election Create a Buying Opportunity?

Bryan Perry

A former Wall Street financial advisor with three decades' experience, Bryan Perry focuses his efforts on high-yield income investing and quick-hitting options plays.

Just about every research firm, brokerage firm, asset manager, hedge fund and individual investor is in hyper-drive conducting “election scenario analysis” to best position assets prior to Election Day, which likely will turn into Election Week. Even that might be optimistic unless there is a clear leader in the Electoral College vote count. 

Advertisement.

Will being fully invested be the right path or having ample powder on the sideline be the right call? It’s very hard to say because even though the market is warm to the idea of a clear winner in short order, a contested election that is close and drags on is being viewed with elevated caution. This is the one scenario that most agree would be wholly disruptive for equities.

This year has seen the stock market endure two dramatic periods of selling (February-March) and (late August-September). Using the S&P as a benchmark, the first sell-off amounted to about 34%, and the second, about 11%. I would venture to say that if the election outcome does seize up and goes to the courts, a slide of 10% or more could occur, but would probably be met with sizeable buying interest on such a pullback.

Advertisement.

Looking at the nine-month chart, it is remarkably clear where the key technical levels lie for the SPDR S&P 500 ETF (SPY). First, support comes in at $340, which was recently tested, then down at $330, then the $320 low in September with the 200-day moving average coming into play at $312. A test of the 200-day moving average would represent a 10% correction that is certainly in the realm of possibility as opposed to probability. 

Exclusive  ETF Talk: Bitcoin Is IBIT of a Trend

Given that roughly 50% of daily volume is attributed to high-frequency algorithmic trading (bfi.uchicago.edu), headlines have a great deal of influence about the short-term direction for the market and may well explain why the corrections, while steep, are also swift in nature, lasting less than a month. 

Key words are triggers for both buy and sell programs, with the world of high-voltage tweets only making for a more volatile investing landscape. A pre-election stimulus package, in conjunction with a couple weeks of solid earnings, will likely keep a firm bid under the market. However, once stimulus and earnings are priced into the market, the door will be open for some downside headline risk.

But here is where it gets interesting. With roughly $5 trillion sitting on the sidelines in money markets, investors are as fearful as one might think. The latest survey from the American Association of Individual Investors (AAII) shows bearish sentiment falling by 3.2% in the past week. These AAII members are typically fairly risk adverse heading into a major event like a national election.

Advertisement.

Source: www.aaii.com

Maybe all that cash has tempered their fear along with the rising tide of earnings growth expectations. Most of these AAII folks are from the school of “sales cures all,” and based on the most recent data from FactSet and the Atlanta Fed, the domestic economy is about to put up some heady Q3 numbers. We already got a glimpse of this from last week’s read on September retail sales that blew past estimates. 

We can see from the bar chart below how the previous stimulus package fueled a surge in retail sales in May and June. As another stimulus package makes it to President Trump’s desk for signature before or after the election, the market has bought into the notion that a package is coming soon when portions of the economy (housing, auto, freight, ecommerce, etc.) are already witnessing strong growth.

Exclusive  Day Trading Requires Discipline and Three Key Steps

Advertisement.

Another $1.8-$2.2 trillion in stimulus is going to give the Fed what it wants and throw another lifeline to heavily impacted industries, small businesses and the unemployed following a rise in weekly jobless claims that could turn into permanent job losses. It appears as if the market will only buckle under the weight of an uncertain and contentious election outcome. 

And if that’s what it takes to bring stocks and exchange-traded funds back down to bargain levels, then a little short-term political chaos might just serve investors very well in the long run. Those who had cash back in March and struck while the iron was hot made out huge, and so did those who took advantage in September, just not to the same degree. 

With 2021 being forecast as a big rebound year for earnings, a year-end emotional blow-off might just offer the third really attractive buying opportunity of the year. Cash-rich investors wondering when they can buy the next big market dip are about to find out.

share on:

Like This Article?
Now Get Bryan's FREE Special Report:
Top Monthly Dividend Payers

Get paid every single month by some of the world’s biggest companies.

Get Access to the Report, 100% FREE


img
share on:

PREMIUM SERVICES FOR INVESTORS

Dr. Mark Skousen

Named one of the "Top 20 Living Economists," Dr. Skousen is a professional economist, investment expert, university professor, and author of more than 25 books.

Product Details

  • Forecasts & Strategies
  • Home Run Trader
  • Fast Money Alert
  • Five Star Trader
  • TNT Trader
LEARN MORE HERE

Bryan Perry

A former Wall Street financial advisor with three decades' experience, Bryan Perry focuses his efforts on high-yield income investing and quick-hitting options plays.

Product Details

  • Cash Machine
  • Premium Income PRO (exclusively for subscribers of Cash Machine)
  • Quick Income Trader
  • Breakout Options Alert
  • Hi-Tech Trader
LEARN MORE HERE

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker,
financial journalist, and money manager. As well as a book author and regular contributor to
numerous investment websites, Jim is the editor of:

Product Details

  • Successful Investing
  • High Velocity Options
  • Intelligence Report
  • Bullseye Stock Trader
  • Eagle Eye Opener
LEARN MORE HERE

Bob Carlson

Bob Carlson provides independent, objective research covering all the financial issues of retirement and retirement planning. In addition, Bob serves as Chairman of the Board of Trustees of the Fairfax County (VA) Employees’ Retirement System, which has over $2.8 billion in assets.

Product Details

  • Retirement Watch
  • Retirement Watch Spotlight Series
  • Lifetime Retirement Protection Program
LEARN MORE HERE

Jon Johnson

Jon Johnson's philosophy in investing and trading is to take what the market gives you regardless if that is to the upside or downside. For the past 21 years, Jon has helped thousands of clients gain success in the financial markets through his newsletters and education services:

Product Details

  • Investment House Daily
  • Stock of the Week
  • Technical Traders Alert
  • Rapid Profits Stock Trader
LEARN MORE HERE

DividendInvestor.com

Used by financial advisors and individual investors all over the world, DividendInvestor.com is the premier provider and one-stop shop for dividend information and research.

Product Details

Popular tools include our proprietary Dividend Calendar, Dividend Calculator, Dividend Score Card, and many more.

  • Dividend Investor
LEARN MORE HERE

George Gilder

George Gilder is the most knowledgeable man in America when it comes to the future of technology and its impact on our lives.  He’s an established investor, bestselling author, and economist with an uncanny ability to foresee how new breakthroughs will play out, years in advance.

Product Details

  • Technology Report
  • Technology Report PRO
  • Moonshots
  • Private Reserve
  • Millionaire Circle
LEARN MORE HERE

DayTradeSPY

DayTradeSPY was founded by head trader Hugh Grossman, a retired internal auditor for a Fortune 500 company. After years of first-hand experience trying out one trading strategy after another, Hugh instead developed his own trading system centered around day trading SPY options. That’s it... Nothing else.

Product Details

  • Trading Room
  • Pick of the Day
  • Inner Circle
  • Online Workshops
LEARN MORE HERE