Causing Big Money to Pump the Brakes

Times are uncertain right now.

There are a lot of crosscurrents garnering investor attention. We have inflation risks, earnings, wars…even budget deficits are in the limelight.

Truthfully, you know these issues are uncertain because you can opine all day on them and never reach an agreement.

What’s not uncertain is when the Big Money Index (BMI) falls from overbought, choppiness often follows. Another nearly surefire happening is the potential for more volatility after Election Day.

Causing Big Money to Pump the Brakes

When the BMI falls out of overbought territory, stocks often stumble. And as of this writing, this BMI is at 72%. That’s below the 80% overbought threshold and the recent peak of 81% made on Oct. 18.

If you’re wondering why the sudden downshift is occurring, it comes down to election volatility. It’s causing Big Money to pump the brakes.

Perhaps it’s for good reason. Elections and markets have an ugly history together.

In 2000, there was the “dot com” bust. In 2008, it was The Global Financial Crisis. And of course, let’s not forget the COVID-19 pandemic of 2020!

But it goes beyond that.

For illustration, let’s use the exchange-traded funds SPDR S&P 500 ETF Trust (SPY), Invesco QQQ Trust (QQQ), and iShares Russell 2000 ETF (IWM) as proxies for stocks of all sizes and corporate specialties. We can see that since 1988, stocks broadly have been uneven until two months after Election Day:

That one- to two-month zone is a tipping point. Here’s what I mean: when you step back and expand the time horizon a bit, you learn that election dips often lead to post-election rips…it just takes some time.

Since 1988, stocks of all sizes see healthy positive gains the further we get from Election Day:

What if a Republican or Democrat Wins the White House?

So, it doesn’t matter who wins because stocks rise after the election. I suppose on a macro level, that’s true.

But what if a Republican or Democrat wins the White House?

When we use the same framework and single out only Democrat presidential winners, a striking pattern emerges.

In the first couple weeks, all stocks sputter. Months later, action firms up, especially for small-caps and tech stocks, and they all gain:

What about if there’s a Republican win?

Since 1988, when the GOP won the White House, Nasdaq stocks struggle while the S&P 500 and Russell 2000 gain. But again, a year later, all indexes rise:

So in the end, it truly doesn’t matter who wins!

New Leaders Will Emerge

Clearly different stocks do better or worse, depending on the political leans of the administration. Notice how the Nasdaq 100 tends to do under Democrats versus Republicans.

But no matter who wins, investors know new leadership will take charge. And it won’t happen overnight. Clearly after elections, it takes some time for new leaders to emerge.

Who will they be?

It’s easier to know with a MAP and Big Money as your guide.

If you’re a serious investor, Registered Investment Advisor (RIA), or a money manager looking for hedge-fund quality research, get start ed with a MAP PRO subscription today.