How to Invest in Post-Election Markets

Nov 18, 2020 10:48 AM ET

iCrowdNewswire   Nov 18, 2020  5:48 AM ET

Historically, the US election has always precipitated volatility and expectation throughout the global markets, although it’s fair to say that the 2020 instalment has elevated this onto an entirely new and exalted level.

Even now that Democrat candidate Joe Biden has claimed well in excess of 270 electoral college votes (270 are needed to provisionally win the election), the decision of the Trump administration to challenge the results in various states means that the markets continue to be defined by volatility.

In this post, we’ll take a brief look at how the markets have reacted while asking how you can successfully invest in post-election sectors.

A Quick Glance at the Initial Market Response

Make no mistake; investors have been whipsawed by volatile markets since the election date, with the S&P 500 futures fluctuating between gains of 2.1% and a loss of 1.3%.

Similarly, the yield of 10-year Treasuries fell as low as 0.76%, with this representing a steep decline of 14 basis points.

Interestingly, the Bloomberg Dollar Index rallied by 1% before giving up many of these gains, after enduring a challenging year that has already seen the greenback decline against the backdrop of proposed stimulus measures.

The trend for uncertainty is expected to continue to abound in the near-term too, with Trump continuing to contest the result in various state courts (albeit with minimal success) and the Electoral College not expected to confirm Biden’s status as President-elect until December at the earliest.

How to Trade the Post Election Markets

With a brief understanding of how the markets are faring, your next step is to learn the precise measures that you can take to trade the post-election climate. Here are some ideas to keep in mind:

1. Track the Performance of Selected Stocks

In 2020 of all years, it’s important to understand that you cannot trade the US election in isolation, especially with the coronavirus continuing to wreak havoc on the global economy.

This is certainly true when measuring the performance of selected stocks in the wake of the election, as global spikes in Covid-19 cases have already caused certain equities to lose value towards the end of October.

While this hardly seems like a good thing, it can prove to be positive if you don’t own declining stocks, with such equities also likely to be considerably more affordable in the aftermath of the US election.

So, we’d recommend making a list of stocks that you’re interested in during the near-term, while also looking into specific shares based on the upcoming economic calendar. Then monitor their prices in the coming weeks, with a view to capturing them cheaply and diversifying your portfolio at the ideal time.

2. Be Prepared to Harvest SOME Losses

Nobody wants to incur losses as an investor, but anyone with a keen sense of determinism will know that this is something that’s inevitable in a volatile marketplace.

It’s also better to consider harvesting small and manageable losses in the near-term, rather than holding onto a stock portfolio that lacks the potential to recover over time.

In this instance, you could incur decidedly more significant losses should the market decline and eventually crash, leaving your capital holding decimated and your future outlook bleak.

3. Practice the Art of Not Panicking

We touched earlier on the importance of determinism, which helps you to appreciate the underlying laws that govern change in the marketplace. This is crucial in the current climate, as while things may be difficult and volatile now, they could get significantly worse in the near or medium-term.

In addition to determinism, this requires discipline and patience from investors, along with an ability to resist the urge to panic when you begin to incur smaller losses.

This is especially true if you retain ownership of the stocks that you’ve invested in, as they provide a secure store of wealth that won’t cause you to incur losses until you sell them.

Ultimately, if you have a carefully defined trading strategy and a keen understanding of the markets, you should have faith in your efforts and resist the urge to react to sudden and short-term market movements.