The Markets Are Betting on a 'Red Wave'

What stocks say about elections... The markets are betting on a 'red wave'... A 'tradable event' has arrived... We've reached Step One of an earnings recession... Another big day later this week... [Stansberry Research Logo] Delivering World-Class Financial Research Since 1999 [Stansberry Digest] What stocks say about elections... The markets are betting on a 'red wave'... A 'tradable event' has arrived... We've reached Step One of an earnings recession... Another big day later this week... --------------------------------------------------------------- The polls are closing soon... But rather than speculate on the outcome, I (Corey McLaughlin) want to emphasize something we mentioned yesterday about politics and stocks... I know I said I wasn't going to get too much into the election today. But this concept can be a useful idea to keep in mind in any election year, be it midterms or a presidential decision day (or week, or month)... or ahead of a similar "tradable event." The market tends to predict election outcomes, not the other way around. You might remember the "presidential election indicator," for example... That is, over the past four decades, the S&P 500 Index's performance in the months ahead of Election Day has accurately predicted who has won the White House every time. Specifically, since 1984, when the U.S. benchmark has been up in the three months before the November election, the incumbent (or incumbent party) has won the presidency. Conversely, if the S&P 500 was down over the preceding three months, the sitting president has been sent packing, or at least the party in the White House flipped. Remember, Wall Street money managers tend to make decisions based on expectations for things happening well in the future. Depending on the approach, they could be thinking about events or trends that will happen or unfold months or years in advance. The markets were right once again in 2020... Barely. From July 31, 2020 to October 31, 2020, the S&P 500 lost a slim 0.04%, suggesting a Joe Biden win over Donald Trump in the presidential election. Then the scale tipped from positive returns to negative in only the last few days before Election Day. Going back further to 1928 and using this same construct, S&P 500 performance in the months ahead of presidential elections would have told you the winner 85% of the time. In a midterm year, the most widely followed races are those for the House and Senate, though certainly other state-level races and ballot measures are important too on a local level. But we'll focus on the Congressional balance today to carry this point on... If we consider the markets have likely been reflecting expected midterm results for at least some time, recent betting action suggests the most popular expectation in the markets is for Republicans to take control of both the House and the Senate. A 'red wave' outcome has become the leading bet... In addition to market moves, some folks bet directly on political outcomes rather than adjusting their stock holdings. And those folks have been putting more and more real money on a Republican sweep in Congress over the past month or so, according to the betting site PredictIt. Below is the price for a bet for a "red wave" compared with a split Congress (Republican House, Democratic Senate), or Democratic sweep. (Virtually no one expects a Democratic House yet a Republican Senate.) Betting odds have tilted more red-red over the past 90 days... Now, I haven't immersed myself in pundits and polling myself. But as is often said... follow the money. More people are betting red than anything else. But investing in the markets is our game here... So, here's more-relevant evidence of the same story... Institutional advisory firm Strategas identified stocks and other assets that would gain or lose the most from one of the two parties winning, forming them into hypothetical Democratic and Republican portfolios. The Democratic basket included renewable-energy stocks, such as First Solar (FSLR), along with health insurers and hospital companies, given the likelihood of legislation to expand Medicare in a Democrat-controlled Congress. It also included some stocks linked to ongoing support for Ukraine, including American defense contractor AeroVironment (AVAV). The Republican portfolio accounted for relatively lower spending and presumed lower inflation, in part by betting on lower short-term Treasury yields. The allocation also had significant exposure to oil and gas companies, like ConocoPhillips (COP) and Enterprise Products Partners (EPD), along with infrastructure names. At last check, the Republican portfolio has outperformed the Democrat portfolio, which the firm says indicates a nearly 70% chance that Republicans win both chambers of Congress. We will see soon enough – barring any elongated disputes about today's races. This is why elections can be 'tradable events'... Folks are interested in them... and they think they might be right. And, more importantly, they have skin in the game as voters (or at least as eligible voters). This was the case the night of the 2016 presidential election. As [our colleague Dan Ferris wrote about that night]( in a Digest a few years ago... Futures for the benchmark S&P 500 Index melted down about 5% as it became clear Trump was winning states everybody thought Democratic nominee Hillary Clinton would win. Likewise, the Mexican peso futures melted down 10% or so (if memory serves)... since everyone knew Trump didn't like the North American Free Trade Agreement and wanted to renegotiate the agreement. By the next morning, though, the S&P 500 losses were gone... I remember someone posting on Twitter: "Best. Crisis. Ever." So if short-term or day trading is your thing, have some fun. But, please, think long and hard before making impulsive long-term portfolio decisions based on election results – or any other single event for that matter. If anything, you might want to consider the election cycle most seriously, [like we described yesterday](... It suggests that no matter what happens at the polls today, stocks will win over the next 12 months... simply because some overhanging and far-reaching uncertainty has been resolved. (Or because stocks tend to go up more than down over longer periods.) Even as the presidential results were contested, the S&P 500 rose 11% from its closing price on Election Day through the end of the year. That stretch kicked off, as we mentioned yesterday, a Year 1 Biden White House gain of 28% for U.S. stocks. As we also said yesterday, Year 2 of a presidential cycle is typically the worst of the four. It looks to be the case this time, too, with the S&P 500 down about 16% in the 12 months following September 30, 2021. And history also strongly suggests a Year 3 bounce for U.S. stocks, meaning the year after midterm elections – if for nothing else, simply because something new has been decided in Congress. Hope springs eternal, I presume... Moving on, here's a quick earnings-season update... As we wrote in the September 20 Digest, we took note that the founders of two of our corporate affiliates – Marc Chaikin of Chaikin Analytics and Joel Litman of Altimetry – both began warning of a coming "[earnings recession]( As we wrote then... In plain English, an earnings recession is when businesses, on balance, report lower year-over-year revenues for two or more consecutive quarters. It's much like two straight quarters of declining gross domestic product is (or was) the definition of an economic recession in general. U.S. stocks are heading that way... According to financial-data firm FactSet, over the past week, the aggregate earnings growth rate for the S&P 500 for the fourth quarter changed from small year-over-year earnings growth (0.2%) to a year-over-year decline of 1%. Eight of the 11 S&P 500 sectors are now projected to report a year-over-year decrease in earnings for the quarter, led by the materials (down 18.0%), communication services (down 15.4%), and consumer discretionary (down 14.4%) sectors. Yet the major U.S. indexes, on balance, have been trending up lately, climbing any earnings-related wall of worry in the process. That's either a possible indicator of more bullish sentiment for the long term... or the markets ignoring a possible earnings recession. Wall Street analysts are still expecting earnings growth for the first quarter of 2023 – and every quarter of next year for that matter. Meanwhile, the bond market keeps warning of a recession. Something has to give... Finally, another big day is fast approaching, too... We'll have more on Election Day returns and analysis tomorrow. But another big day for the markets is coming up fast, too... It's almost time for another inflation day. On Thursday, we receive October's consumer price index ("CPI") data from the U.S. Bureau of Labor Statistics. Like elections, "official" inflation-data days have become tradable events. Last month, the major U.S. stock indexes staged [a massive intraday reversal]( after September's CPI numbers (8.2% annual growth) were released. That was October 13, the S&P 500's most recent low. The U.S. benchmark is up 5% since then. I don't want anyone to be caught off guard by some possible market volatility later this week... We can't say for sure what the latest inflation read will look like on Thursday, but it will likely say something to Wall Street and other traders. If stocks across the board react positively again this month, it could be another indication that "[stocks are pricing in peak inflation]( as our friend and Ten Stock Trader editor Greg Diamond has said lately. If not, then that means the market was surprised. 'Prepare, Don't Predict' Many might think our Dan Ferris and Matt McCall are opposites... a bear versus a bull. But when they got together at our recent conference in Boston, they found they had more in common than folks might realize... [Click here]( to watch this episode of Making Money With Matt McCall right now. And to catch all of Matt's shows and more videos and podcasts from the Stansberry Research team, be sure to [visit our Stansberry Investor platform]( anytime. --------------------------------------------------------------- Recommended Links: [This New Eye-Opening Opportunity Is Now Closing]( STOP trying to predict the market. STOP trying to find "the next Amazon." STOP falling for all the "experts" with a magic formula. Our friends at Empire Financial Research have booked an 87% success rate by using a no-nonsense approach that could make you thousands of dollars a week. Until midnight tonight, [see a free demo here](. --------------------------------------------------------------- ['SELL THIS BELOVED AMERICAN STOCK IMMEDIATELY']( Wall Street titan Marc Chaikin and world-renowned forensic accountant Joel Litman just delivered an urgent crisis warning... and shared the best step to take with your money right now to protect yourself. Plus, Joel reveals his No. 1 stock you should SELL immediately. It's a beloved American company that he says is headed for disaster. [Click here for details and be ready to act quickly](. --------------------------------------------------------------- New 52-week highs (as of 11/7/22): Booz Allen Hamilton (BAH), Biogen (BIIB), Black Stone Minerals (BSM), Covenant Logistics (CVLG), Chevron (CVX), Enerplus (ERF), Freehold Royalties (FRU.TO), Gilead Sciences (GILD), W.W. Grainger (GWW), Lockheed Martin (LMT), McDonald's (MCD), VanEck Oil Services Fund (OIH), SLB (SLB), Texas Pacific Land (TPL), Viper Energy Partners (VNOM), Energy Select Sector SPDR Fund (XLE), and ExxonMobil (XOM). In today's mailbag, an answer to a question posed in yesterday's mail... and more feedback on [Dan's latest Friday Digest](... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com. "In response to Dave P. and his recent comments [in Monday's mailbag], Elon Musk is John Galt." – Paid-up subscriber Alan F. I am 79 years old, so my primary goal is capital preservation!! "I lived through the gasoline shortage in the early 1970s when there wasn't enough oil production, drilling rigs increased to 5,000 and then dropped to 1,000 in the second quarter of 1982 due to increased lower cost supplies from the middle east. "I bought my second residence in March 1982 with a mortgage interest rate of 19.5% (people seriously think the current rate at 7.5% is high) and proceeded to finance two children through college. "With that experience, I got your message about the bubble loud and clear, sold some questionable stocks and stopped out of several more. Invested most of the proceeds in short term U.S. gov't bonds and reinvesting short term as they mature. I do have some gold/gold stocks, oil/gas stocks, and health care stocks, but don't see any point in the rest of the market at this time. I can wait for the bubble to finish bursting before seeking new investments. "Thank you for getting my attention and encouraging me to avoid the implosion!!" – Paid-up subscriber Bob C. All the best, Corey McLaughlin Baltimore, Maryland November 8, 2022 --------------------------------------------------------------- Stansberry Research Top 10 Open Recommendations Top 10 highest-returning open positions across all Stansberry Research portfolios Stock Buy Date Return Publication Analyst ADP Automatic Data 10/09/08 848.9% Extreme Value Ferris MSFT Microsoft 11/11/10 812.7% Retirement Millionaire Doc MSFT Microsoft 02/10/12 696.3% Stansberry's Investment Advisory Porter ETH/USD Ethereum 02/21/20 556.5% Stansberry Innovations Report Wade HSY Hershey 12/07/07 546.3% Stansberry's Investment Advisory Porter AFG American Financial 10/12/12 463.2% Stansberry's Investment Advisory Porter TPL Texas Pacific Land 11/05/20 447.5% Stansberry's Investment Advisory Gula WRB W.R. Berkley 03/16/12 422.1% Stansberry's Investment Advisory Porter BRK.B Berkshire Hathaway 04/01/09 414.5% Retirement Millionaire Doc ALS-T Altius Minerals 02/16/09 332.3% Extreme Value Ferris Please note: Securities appearing in the Top 10 are not necessarily recommended buys at current prices. The list reflects the best-performing positions currently in the model portfolio of any Stansberry Research publication. The buy date reflects when the editor recommended the investment in the listed publication, and the return shows its performance since that date. To learn if a security is still a recommended buy today, you must be a subscriber to that publication and refer to the most recent portfolio. --------------------------------------------------------------- Top 10 Totals 5 Stansberry's Investment Advisory Porter/Gula 2 Extreme Value Ferris 2 Retirement Millionaire Doc 1 Stansberry Innovations Report Wade --------------------------------------------------------------- Top 5 Crypto Capital Open Recommendations Top 5 highest-returning open positions in the Crypto Capital model portfolio Stock Buy Date Return Publication Analyst ETH/USD Ethereum 12/07/18 1,286.3% Crypto Capital Wade ONE-USD Harmony 12/16/19 1,177.1% Crypto Capital Wade POLY/USD Polymath 05/19/20 1,095.0% Crypto Capital Wade MATIC/USD Polygon 02/25/21 962.7% Crypto Capital Wade TONE/USD TE-FOOD 12/17/19 455.1% Crypto Capital Wade Please note: Securities appearing in the Top 5 are not necessarily recommended buys at current prices. The list reflects the best-performing positions currently in the Crypto Capital model portfolio. The buy date reflects when the recommendation was made, and the return shows its performance since that date. To learn if it's still a recommended buy today, you must be a subscriber and refer to the most recent portfolio. --------------------------------------------------------------- Stansberry Research Hall of Fame Top 10 all-time, highest-returning closed positions across all Stansberry portfolios Investment Symbol Duration Gain Publication Analyst Nvidia^* NVDA 5.96 years 1,466% Venture Tech. Lashmet Band Protocol crypto 0.32 years 1,169% Crypto Capital Wade Terra crypto 0.41 years 1,164% Crypto Capital Wade Inovio Pharma.^ INO 1.01 years 1,139% Venture Tech. Lashmet Seabridge Gold^ SA 4.20 years 995% Sjug Conf. Sjuggerud Frontier crypto 0.08 years 978% Crypto Capital Wade Binance Coin crypto 1.78 years 963% Crypto Capital Wade Nvidia^* NVDA 4.12 years 777% Venture Tech. Lashmet Intellia Therapeutics NTLA 1.95 years 775% Amer. Moonshots Root Rite Aid 8.5% bond 4.97 years 773% True Income Williams ^ These gains occurred with a partial position in the respective stocks. * The two partial positions in Nvidia were part of a single recommendation. Editor Dave Lashmet closed the first leg of the position in November 2016 for a gain of about 108%. Then, he closed the second leg in July 2020 for a 777% return. And finally, in May 2022, he booked a 1,466% return on the final leg. Subscribers who followed his advice on Nvidia could've recorded a total weighted average gain of more than 600%. You have received this e-mail as part of your subscription to Stansberry Digest. If you no longer want to receive e-mails from Stansberry Digest [click here](. Published by Stansberry Research. You’re receiving this e-mail at {EMAIL}. Stansberry Research welcomes comments or suggestions at feedback@stansberryresearch.com. This address is for feedback only. 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