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written by reader US Presidential elections

By Anonymous Questions, August 19, 2016

Isn’t it true that the stock market always
drops before the US Presidential elections due to the uncertainty of
the outcome?
And isn’t it equally true that it always bounces back up again once
the result in known?
And doesn’t it mean that there is profit in it for the stock market

With that scenario in mind, which is the best of the three possible

1. Stick with your stocks, ignore the bumpy ride. Things will get back
to normal post November 8.
2. Take your profit and offset your loses by selling your shares now,
and buy back again after the election when the new White House
resident is declared.
3. Sell your shares now, but buy back a couple of days BEFORE the
elections when the shares would have fallen almost to their low point
in anticipation of the rise after November 8.

Interesting quandary!

This is a discussion topic or guest posting submitted by a Stock Gumshoe reader. The content has not been edited or reviewed by Stock Gumshoe, and any opinions expressed are those of the author alone.



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6 years ago

You pose a most interesting and timely question. Your basic premise is correct and normally I would choose (1) if I was still holding stocks at this time. The answer is beyond me as I have never seen an election like this one. I think a great deal will depend on which sector the stocks are in.
Precious metals,Bio,and energy are going to be especially volatile and thus risky but positioned to return considerable profit if you choose right.
I am going to throw another risk factor into this mix.We have had the longest nonrecovery recovery on record and now are at risk of another recession starting at a time when no means to ease it using normal keynesian methods are available. The debt has simply been allowed to grow too much this time. imho
I am mulling cutting back my amount of investment or at least shorting some weak companies that would be unlikely to survive another hit,
such as the housing market or more correctly real estate with it’s huge overhang of nearly worthless paper owned by the financial entities
that have put the taxpayer on the hook to back them.
I am looking forward to comment by wiser investors than myself.

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👍 7795
Jay Ram
6 years ago

One of the best rules to follow in taking tests applies to this logic: whenever you see “always,” it’s almost always not going to be true.

Markets do fall during periods of uncertainty, but whether that applies in the leadup to an election depends on our expectations of the outcome. When you have a candidate taking a safe lead in the polls, that tends to give us more certainty about the outcome. In which case, the expected outcome will already be priced in while the surprise would more likely lead to a drop (unless it’s a good surprise, but I don’t think either candidate represents a good surprise).

Just expand your horizons to elections outside the U.S. over this past summer and you’ll recall a perfect example of the exact opposite trend happening.

👍 73
Travis Johnson, Stock Gumshoe

On average over the last century or so, presidential election years are the second-best years for the stock market in the four year cycle. Best performance is in the third year of a term, and the first year of a presidential term is the worst year for the market. So based on that, this year would be expected to be good but not as good as last year, and next year would be worse.

I don’t think that has much predictive power, we’re talking about a pretty small sample size of 25 or so presidential elections and there has been other exogenous stuff going on much of the time. And, of course, this is the most ridiculous election we’ve had in my lifetime — so I wouldn’t bet anything on past trends holding true.

I would guess that if Trump turns things around and is doing really well in late September and October, or picks up his poll numbers during the debates, the market will do very, very poorly going into the election. Hilary is clearly the more predictable candidate, likely to continue with similar policies without dramatic surprises, and that’s what investors and businesses prefer, on the whole. But who knows, it’s a crazy year.

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6 years ago

I believe there is a lot of risk right now, not just from the coming election. I’m generally not a “sky-is-falling”/”time-the-market” type, but this time I couldn’t resist; I sold off some of my dividend paying (non biotech) stocks stocks, my muni bond holdings, and my “emergency fund” investment in the Fidelity Balanced Fund. There’s the election, a possible coming attack of Iran by israel (so say the rumors); possible military action against North Korea’s growing nuclear weapon program; a likely rate increase by the Fed as early as next month; a year-long earnings recession, which tends to lead to a market drop; the insane amount of corporate and government debt that is like dry wood waiting for a match.

Who the heck knows what tomorrow will bring, but I am sleeping better having lots of cash ready just in case.

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