Stock markets will always react to elections in some way and this year should be no different. Fortunately, the volatility that is created, either in specific sectors or the broad market, is often overdone. This could create opportunities this coming week.
First, let’s tackle the broad market. This is fairly simple to gauge. Markets hate uncertainty, so any result at the polls on Tuesday that brings into question the political climate over the next two years should make some people nervous. However, any short-term weakness we see from this uncertainty should be expected to be fairly short term in nature. Traders always shoot first and ask questions later. Cooler heads usually prevail, and investors will jump in to correct any inefficiencies that were created by quick, emotional, and merely reactionary decision making.
As for individual sectors, the stock price movements will likely be very evident this year. Dems are talking about windfall profits taxes for big oil, as well as healthcare costs spiraling out of control. These two sectors will likely get sold if the Dems turn in a solid performance at the polls. So would contractors who have been making billions over in Iraq. Think Halliburton (HAL).
The question we need to ask ourselves, though, is how will this affect the next two years, really? Even if the Dems take both the House and Senate (I think this is quite unlikely) Bush will show us a new side of his; the veto side. Markets tend to like gridlock because it can result in compromise, which ultimately means things actually get done on Capitol Hill. However, Bush is hardly one to be receptive to compromise, so I wouldn’t hold my breath.
Overall, I think we can get some buying opportunities if certain sectors see sharp sell-offs on the heals of the election. Let’s keep an eye out for this and if anything peaks my interest, I’ll let you all know (and feel free to do the same).
And don’t forget to vote on Tuesday!