It’s Time to Factor the Election Into Your Investing – Here’s the Roadmap
We’re quickly approaching the midpoint of the year, and considering how inflation, high interest rates, and global uncertainty have hung over the market, stocks have done well.
I hope you’ve made good money along the way.
In fact, that Nasdaq Composite is on pace for 30%+ gains in 2024, and the S&P 500 is not far behind. That would be about triple the annual average (about 10%) in a “normal” year.
But this year is not normal.
This is an election year, and it’s a doozy.
If general historical patterns hold true, we should see more gains in July before volatility kicks up in August, September, and probably into early October. We navigate through that volatility and then reap the rewards in a big fourth quarter, which is almost always the best of the year by far.
Notice that November is the biggest month of the year, and that happens to be election month. The rhetoric and attention really accelerate in a few short days with the first debate between Joe Biden and Donald Trump scheduled for Thursday.
This surely has to impact how we invest, right?
Actually, no. And that’s great news.
The Pattern Is Clear
First of all, the polling data is clear as mud. Even if you don’t believe the polls, it’s a coin toss who will win. Investing based on projected outcome is risky – too risky for me.
For those of us more interested in making money, knowing what Big Money does gives us a much better election investing roadmap.
And that map shows that we don’t have to take alternate routes or avoid any particular potholes. Historically, it just doesn’t much matter who wins, and Big Money follows a well defined investing pattern in election years.
Regular Power Trends readers know how important Big Money flows are. Institutions account for 70% to 90% of daily stock volume, so it pays – quite literally – to focus on the pros that invest massive amounts of money.
In fact, that’s my Quantum Edge strategy in a nutshell: Gain a huge advantage swimming with the money flow currents by following Big Money into the highest quality stocks.
To discover the specific roadmap for what that means in presidential election years, I researched every election since 1990 and analyzed what Big Money does around elections.
Big Money is highly predictable in election years. The same pattern emerges nearly every time whether a Republican or Democrat wins.
Big Money clearly doesn’t invest much on political preferences, but the pros absolutely hate uncertainty. That’s why they spend tons of time, money, and resources vetting their investments. The last thing they want is to get burned by the unknown.
With that in mind, the pattern makes sense: Big Money unloads some stocks ahead of the election to cautiously lower risk, and then that money comes flowing back in after the election, once the uncertainty – real or perceived – has passed.
Here’s the Data
I’ll show you exactly what that looks like in a few charts.
The yellow line is my proprietary Big Money Index (BMI), which measures the flows of big money. It’s quite simple: When that yellow line rises, money is flowing into stocks. When it falls, money is moving out.
I marked Election Days with a light blue vertical line, and the shaded dark blue area is the S&P 500.
The 1992 chart is below. You can see how the S&P 500 and the BMI peaked in the summer, turned lower into late October, quickly rose to new heights after the election, and kept rising through the end of the year.
Let’s now look back at years the two candidates were elected. In 2016 when Donald Trump went on to win, Big Money again started to lighten up in August, and the S&P 500 again declined, though not as dramatically. Then came the sharp reversal in both the BMI and the market.
And then there’s 2020, which was an exceptionally rare year. It started with the pandemic and the Covid crash, which was followed by an absolutely massive rebound. But even with that the election year pattern largely held.
Big Money started unloading stocks a little earlier in June. The S&P 500 continued to rise even as the BMI fell. Lighter buying volume can also lower the BMI, even without a significant increase in selling. That’s what happened here, as the market kept rising while the BMI fell.
In this case, Big Money accelerated its buying about a month ahead of the election. Stocks pulled back just prior to the election, but they again took off afterwards.
Where to Invest Now
I find this pattern comforting, reassuring, and profitable.
I’m not a professional fortune teller or crystal ball reader, but I don’t have to be to make money.
I have little doubt there will be volatility in the months preceding the election, and it’s not out of the question there will be volatility after the election. But I am extremely confident that Big Money will ultimately flow into stocks, and the data indicate that the fourth quarter could be a heater.
Remember, the likelihood right now is that the Federal Reserve will cut interest rates either right before the fourth quarter or during the fourth quarter. That’s unusual in an election year, but we just saw 10 days ago how investors reacted to even the increasing possibility of rate cuts.
Knowing all this, it would be a mistake to wait for clarity in the polls or the actual election results to invest. Odds are you would leave some profits on the table.
And knowing that, the next question is where to invest.
This is where the Quantum Edge method comes into play. The whole foundation of my method incorporates predictive analytics, artificial intelligence-like computing, and custom algorithms to quantitatively analyze and find the best stocks in the market with the highest probability of making you money.
Here’s the final piece of good news: Those same stocks that rise to the top of my system in nonelection years– the ones with the best fundamentals, strong technicals, and Big Money inflows – also win in election years.
The secret sauce is seeing where Big Money is going. Few investors can do that because Big Money tries its best to cover its tracks. But my unique background facilitating these Big Money trades gave me the know-how to spot Big Money’s footprints.
That’s where you want to invest – in the highest quality stocks that Big Money is buying. That’s true all the time, even in election years.
Talk soon,
Jason Bodner
Editor, Jason Bodner’s Power Trends