That was President Trump’s response yesterday when a reporter asked him if he would ensure a peaceful transfer of power if he loses this November’s presidential election.
It’s a new reminder that one of the most hotly contested presidential elections is just 40 days away. Regardless of who you’re backing, I’m sure you’ll agree sparks will fly…
We got a great question in the mailbag about it from a Legacy reader, Markus S. He wants to know how it will affect stocks…
A question for Jason Bodner at Palm Beach Trader. Does he have any data showing how the stock market performs just before and after the presidential election? Is there historically a pullback before/during/after the election? Or has the market rallied before/during/after the election?
Not only is it a great question. It’s a timely one. So today, I (Chris Lowe) will share with you the research Jason and his team have done on past elections.
They’ve discovered a market phenomenon that’s happened over the past seven presidential elections.
Keeping it on your radar will help you sidestep volatility… no matter who wins in November. Jason even lays out how you can use this phenomenon to boost your profits in stocks in the months ahead.
Before we get into that, it’s important you know why Jason is worth listening to on this.
That’s what makes him the perfect member of the Legacy team to turn to for insight.
Before joining us, he worked at two of Wall Street’s most prestigious institutional trading firms, Cantor Fitzgerald and Jefferies.
His job was executing multibillion-dollar trades for reclusive billionaires and high-profile hedge fund managers. In fact, he was one of the few traders on Wall Street at the time authorized to make trades worth more than $1 billion.
After quitting Wall Street, Jason created a proprietary trading system.
It’s given Jason’s paid-up subscribers the chance to pick up gains of 165%… 227%… even 411%.
And it’s based around a market timing indicator he created called the Big Money Buy/Sell Index (BMI).
Using decades of data… and 20 years of careful refining… it tracks when big money investors are moving in and out of stocks.
The index falls as the big money sells. It rises as the big money buys back in.
As Jason learned on Wall Street, stock prices don’t move significantly because you or I buy or sell them. They move when big institutions and deep-pocketed investors are buying or selling.
Here’s Jason with more on that…
For the seven presidential elections since 1992, big money sells ahead of an election. It then buys right after the results. Every time.
I looked at data for each U.S. presidential election year of the past three decades – 1992, 1996, 2000, 2004, 2008, 2012, 2016, and this year so far.
For each of those years, big money sold stocks prior to Election Day and bought in again after the results were announced.
It’s all in a chart series Jason showed readers of his free Palm Beach Insider e-letter.
If you’re of a certain age, you’ll remember it well.
It’s when a relatively unknown Democratic governor of Arkansas, William Jefferson Clinton, bested the Republican incumbent, George. H.W. Bush.
When Jason backtested his BMI for 1992, here’s what it looked like…
The blue shaded area tracks U.S. stock market bellwether the S&P 500. The yellow line shows the big-money flows in and out of stocks. The vertical light blue line marks Election Day.
As you can see, the BMI and the S&P 500 dropped going into the election. Then they surged after the winner was announced.
Take a look at 2008, 2012, and 2016 – all election years.
Save for 2008, the BMI and the S&P 500 fell before Election Day and rose once the results were announced.
Remember, 2008 was the year of the global financial crisis. The S&P 500 bottomed in March of 2009 – roughly four months after the election – and rocketed higher from there.
Take a look at the last chart Jason created for his readers.
It’s still only September. So the chart is blank on the right.
But what’s shaping up with the BMI and the S&P 500 looks eerily like the past elections. Here’s Jason with more…
I expect we’ll get a V-shaped pattern again this year. This pattern was present in all other presidential elections since 1990. And it makes sense.
The uncertainty of the result going into the election almost always means volatility. And the U.S. presidential elections are at once the most uncertain and highest-impact influence on the stock market.
The results alter the direction of the country’s economy for the next four years. How does each party’s policy affect a specific business, or industry? How will taxes change? And so on…
This all points to a great setup ahead for stocks, says Jason. You just have to keep the “V” in mind… or some version of it.
Stocks should continue to drop heading into November… and then rally once the dust has settled.
Think of volatility like turbulence on an airplane.
When it’s low, the market is smooth, and you tend to tune out. When it’s high, it’s like hitting an air pocket and getting jolted in your seat.
You sit up and pay attention. Your heartbeat shoots up. If it gets bad enough, you may start to panic.
But as I’ve shown you in these pages, successful investors use volatility to their advantage.
When stocks dip… you can pick them up at bargain prices. You want to buy low and sell high… not the other way around.
That means right around election time will be a good time to buy… as uncertainty rises and stocks fall. If history is judge, when that uncertainty lifts, stocks will take off again.
That makes it important to have two things: cash to pick up stocks at bargain prices… and a list of stocks you’re itching to buy as uncertainty starts to peak in November.
Jason helps readers choose best-in-breed stocks in his advisory Palm Beach Trader. If you’re interested in finding out how to follow his recommendations yourself, click here.
September 24, 2020