The upcoming U.S. presidential electrical can seem daunting, looming ahead with the future of the stock market in its grasp. Many investors feel uncertain about the future and are nervous about what the future may bring for their portfolios. In today’s article, we will discuss a pre-election outlook & why market volatility may be good for you.
Consensus now holds that stocks will benefit, regardless of who wins next month’s election.
If Biden were to win he will raise taxes on corporations and high earners if he wins, but fiscal policy will get even looser. Along with Biden’s aggressive stimulus, we will see another Fed infusion. This will be good for stocks.
If re-elected, President Trump will cut taxes, and corporate welfare will increase. There will still be some stimulus, plus companies will be able to buy back more of their own stock with the proceeds of the President’s business-friendly policies. Again, stocks will rise.
Either way, the Fed will continue with QE-Infinity monetary policies. In addition, there is already a ton of unallocated cash sitting on the sidelines. Once current uncertainties are resolved, a new round of asset purchases is almost certain.
The bulls remain firmly in charge. Index prices are up across the board, and may test the summer highs. The volatility index is at a six-week low, and treasuries remain strong. The only real weakness in the market now is in the energy sector, and that is probably temporary.
What could possibly go wrong? The short answer is unpriced surprises.
As we have pointed out previously, three major downside risks remain unaccounted for in current prices:
- A COVID 2nd wave. The global economy will be severely impacted if actual cases (not just positive diagnoses) rise above the levels seen in the early stage of the pandemic. Regardless of one’s opinion on the virus response, if lockdowns are invoked by authorities around the world, stocks could suffer.
- A stalled recovery. The full effects of the spring shutdown have not yet made their way into the statistical indicators that measure economic vitality. At some point, the massive unemployment, business failures, and mortgage defaults caused by the pandemic response must be balanced by new jobs, business re-openings, and renewed productive capacity. If this doesn’t happen, the “recovery” could fail, taking stocks down.
- A contested election outcome. The nightmare scenario of no clear winner in November remains beyond the imagination of the market. Everyone seems to have forgotten this summer’s social unrest, but the prospect of renewed protest and confrontation, fueled by a disputed vote, has not been priced into the market.
Here’s the Opportunity – a long/short strategy is essential for traders in today’s market. You must be ready to profit, whichever way the market goes.
As Americans, we have our preferences for how things “should” turn out. In our trading, though, we must put our biases aside, if we want to take advantage of whatever gains the market offers.
Remember, volatility in the markets means opportunity. Position yourself now to make money in the next big market move, whether it is up, or down.
This concludes our pre-election outlook and market volatility discussion. All in all, the moral of the story is to be prepared for anything and take advantage of market volatility and the opportunities that it provides.
At FFR trading, we pride ourselves on making unbiased decisions to connect you with the best portfolio to suit your needs. We promise to try our best to help you determine the best long/short approach for your individual situation. If you would like to learn more about our options, forex, index futures, and commodities strategies please contact us by filling out our contact form, giving us a call at (800) 883-0524 or emailing us at [email protected] For more frequent updates, you can follow us on social media on Instagram, Facebook, Twitter, and LinkedIn. Happy trading, everyone! Keep working toward your financial and portfolio goals!