By Jason Bodner,

September 22, 2020,

Let the mudslinging begin! (or should I say, escalate?)

November 3rd, Election Day, is fast approaching. Whether you’re left, right, or center in your political leanings, one thing is certain: You will see plenty of ads urging you to vote. Despite the usual push to get Americans to vote, the U.S. is pretty poor in terms of voter participation vs. the rest of the world.

That’s right. Barely half, just 53.6%, of eligible Americans voted in 2012. That puts the U.S. 31st out of 35 OECD (Organization for Economic Co-operation and Development) nations. Belgium was #1 in 2014 with 87.2% of Belgian citizens voting. Australia even requires voting. If you don’t vote, you get fined.

So, consider this as we get closer to November: If you don’t vote, you can’t complain about the outcome. Most voters are already decided, but for the key voters in swing states, the rhetoric is intensifying on both sides. And as we well know, it can get nasty. So, buckle up for a volatile and contentious battle to the end.

What does all this mean for the markets? Intuitively, uncertainty means volatility for investments, but how does each party’s economic and tax policies contribute or harm a specific business or industry?

How about timing? I’ve heard September is typically a weak month for markets. It happens to be true.

The S&P 500 (SPY ETF) is down almost 5% so far this month. That’s quite a reversal from July and August, with massive gains of +5.89% & +6.98%, respectively, but remember, when the animal spirits howled, we saw huge ETF buying, and I said that was my tip-off that markets were likely to get unsettling.

September began with a reckoning in tech and energy stocks. Last week began well with some healthy buying but selling intensified in sectors outside of those two, as Utilities and Staples saw outflows:

Map Signals Sector Ranking

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

While it looked for a day or two like the selling spell was behind us, there is volatility under the surface.

Despite the timely signals of froth foreshadowing chop, September weakness was to be expected.

The average SPY return for Septembers since 1990 is -.34%, But what about election-year Septembers?

In election years since 1990, the major index ETFs performed even worse, returning -0.85%, so election-year Septembers are between 2.5 and 3.5 times worse than non-election-year Septembers since 1990.

Election-Year-Fact-Set

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

But why? Big money investors don’t like uncertainty, so they typically shed risk headed into elections.

The Mapsignals Big Money Index (BMI) tracks huge investment capital moving in and out of stocks. The index falls as selling rises and it rises as buying increases. Usually, the trend is your friend, and especially as an investor – you don’t want to fight the trend, and the trend in the BMI right now is down:

BMI-Line-Chart-Depicting-September-Values-of-Election-Years

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

It turns out that election years tend to see a falling BMI heading into the election and a rising BMI after. Simply put, stocks get sold into the uncertainty of Election Day and get bought soon after.

We will address all elections since 1990 in a larger study soon, but here are the three latest elections from 2008, 2012, and 2016. Each vertical blue line is Election Day. They tend to show a similar pattern.

2008 Big Money Index Line Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

2012 and 2016 BMI

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Notice how the yellow line plummets before Election Day and rises soon after? Each time, that was big money fleeing from stocks before Election Day. Once it was known who won the presidential election, Big Money plowed back into stocks. Is this starting to happen again right now? You tell me:

2020 BMI

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

It certainly looks eerily similar to the last three elections, doesn’t it? I can also tell you that the pattern revealed itself in the other presidential elections since 1990 too.

That is why I believe a great set-up is ahead for stocks:

  • We are seeing yet another historically weak month of September for stocks.
  • We are in an election year, making this September likely worse than non-election years.
  • We have big money historically trying to side-step political uncertainty
  • And we will likely see some relief buying that typically happens after Election Day.

If history is any guide, start making your buy lists now. It’s a good time to have cash. Isolating outlier stocks that have fallen victim to risk reduction due to an election is a great way to cherry pick. Let the political worry of others become your investment confidence.

Look for strong stocks with great businesses, strong sales and earnings growth, big profits, low debt, and a strong history of big money buying. When those go on sale because avoiding the risks of the unknown is seen as wise for business for big professional money managers, that’s opportunity knocking. We have history suggesting that they’ll get back in after we know who wins.

As for who does win on November 3rd? I’ll leave that debate for virtual cocktail parties and the talking heads on network news.

Gore Vidal said: “Half of the American people have never read a newspaper. Half never voted for President. One hopes it is the same half.”

A Gore Vidal Qoute

I will cast my vote in an effort to bolster the weak global standing of America’s voter attendance record. Beyond that, I only need to focus on the hidden winners that will come from Election Day.

Outlier stocks on sale are gifts handed to us by the volatility of political uncertainty. History suggests that we should be ready with our lists. I am. Are you?

All content above represents the opinion of Jason Bodner of Navellier & Associates, Inc.

Please see important disclosures below.

About The Author

Jason Bodner
MARKETMAIL EDITOR FOR SECTOR SPOTLIGHT

Jason Bodner writes Sector Spotlight in the weekly Marketmail publication and has authored several white papers for the company. He is also Co-Founder of Macro Analytics for Professionals which produces proprietary equity accumulation/distribution research for its clients. Previously, Mr. Bodner served as Director of European Equity Derivatives for Cantor Fitzgerald Europe in London, then moved to the role of Head of Equity Derivatives North America for the same company in New York. He also served as S.V.P. Equity Derivatives for Jefferies, LLC. He received a B.S. in business administration in 1996, with honors, from Skidmore College as a member of the Periclean Honors Society. All content of “Sector Spotlight” represents the opinion of Jason Bodner

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