Election Anxiety Is Over … If You Follow “Safe Money” Strategies

This is probably going to sound ridiculous, in a “Woodward’s garage freak” sort of way. But, here goes ...

Someone on our staff — who’s in a position to see things like presidential campaigns’ internal data — is confident we’ll “know” ... not in weeks, or even days ... but soon ... the outcome of this election.

That’s what the market was telling us by midday Tuesday, with the Dow Jones Industrial Average, the S&P 500 Index and the Nasdaq Composite shaking off anxiety and adding 2.16%, 1.98% and 1.94%.

Talking heads — in need of explanations, as always — chalked this up to a “blue wave” rising and driving new stimulus legislation.

So, perhaps it’s “Morning in America,” again, or at least Democrats will have their chance to appropriate that slogan.

Or, perhaps President Donald J. Trump has pulled out another come-from-behind win, markets have gyrated like they did last time, and it’s same-old, same-old for another four years.

Of course, I can’t speak (yet) about everything that’s happened in the last 24 hours, including the results of critical down-ballot races that will impact the composition of Congress and the ability of Washington to get anything done.

This is all to say, today, things look a lot like they did heading into Tuesday’s vote: uncertain.

Americans have been bitterly divided all year. Protests and violence have been rocking the nation. Both presidential campaigns have geared up for aggressive, drawn-out legal challenges.

As of press time, there have been no concessions.

Those pre-election jitters helped drive volatility higher and stock prices sharply lower in late October. Record highs for COVID-19 case counts, along with new shutdowns and restrictions in Europe to combat the pandemic, only made that bad situation worse.

Now, when the election does pass into the rear-view mirror, should investors expect smooth sailing into year-end and beyond?

An end to heightened volatility in several asset classes?

A resumption of the pre-2018 bull market, where most stocks and sectors were pulling together?

Can we all go back to singing “Happy Days Are Here Again”?

My short answer is “no.”

For one thing, this week’s election results won’t change the powerful, underlying economic and cyclical forces we’ve been discussing for two and a half years. Those forces fueled significant “behind the scenes” market shifts beginning in the first quarter of 2018, with defensive income-oriented stocks and precious metals grabbing the leadership torch.

For another thing, they won’t eliminate the COVID-19 pandemic. Elevated case counts and the business shutdowns and government restrictions that accompany them will, unfortunately, be with us for some time.

More importantly, the president tasked with running the country for the next four years will have much less flexibility than any of his predecessors. You can find the nasty, nitty-gritty details in the September 2020 outlook published by the nonpartisan Congressional Budget Office (CBO) ...

Federal debt held by the public should rise to $22 trillion next year.

As a percentage of gross domestic product, debt will likely top 100% then eclipse the post-World War II record in 2023, when it hits 107%.

Interest payments on the country’s debt will more than double from 2021 levels — to $660 billion by 2030.

What does all that mean?

Even if Republicans and Democrats can come together and try to find common ground on things like aggressive economic stimulus, the money to pay for it just isn’t there. It’ll have to be borrowed. Capital markets may rebel if related costs spiral higher.

Bottom line?

The same “Safe Money” investment strategies that worked best PRE-election will also work best POST-election.

Continue to focus on “Safe Money” sectors, strategies and asset classes. That includes higher-yielding, higher-rated stocks in defensive industries as well as Treasuries and precious metals.

Make sure you continue to avoid sectors that have been out of favor and will remain that way given longer-term trends that have nothing to do with politics.

The gradual shift away from fossil fuels in power generation and the automotive industry, for instance, is bad news for many energy names.

Plus, the “ZIRP Forever” interest rate policy our central bank plans to stick with for years — no matter who is in the White House — won’t do financial stocks any favors.

Above all else, remain flexible, alert and ready for fresh guidance in the weeks and months ahead.

This election’s end doesn’t mean heightened market volatility — or significant potential pitfalls — are going away.

Until next time,

Mike Larson