Election 2016: Must-Read Market Theories for Before and After the Vote

The DJIA hasn't told us much about how this election will pan out, but the results of today's vote could influence the future performance of stocks

Nov 8, 2016 at 10:29 AM
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The presidential election has been a leading catalyst in stock market moves in recent weeks, with anxiety flying high as the much-anticipated event approached. As Americans head out to vote today, investors will be keeping their eyes on how stocks may be affected by the outcome of this election.

Before we look at how stocks could move in the aftermath of the vote, however, let's consider what recent market action may be able to tell us about what to expect. Going back to 1900, the performance of the Dow Jones Industrial Average (DJIA) leading up to an election has often been a strong indicator of which party will win the White House. Unfortunately, there are two theories, and this year they are giving us two conflicting answers. On the upside, 2016 marks just the second time over this period the Dow has been positive during a president's eighth year in office.

Zeroing in on the stock action we can expect today and tomorrow, history tells us the Dow tends to outperform on Election Day. Of course, with Monday's massive rally, it looks like there may not be a lot of buying power left to boost the market today. And traders may want to brace for a pullback tomorrow, too -- since 1900, the DJIA has given an average return on negative 0.2% on the day following the election, and given a positive return less than 45% of the time.

Speaking of bracing for a pullback, the current positioning of traders on SPDR S&P 500 ETF Trust (SPY) and CBOE Volatility Index (VIX) options suggests speculators are fully braced for a big post-election move already -- and likely a move to the downside. On Monday morning, Schaeffer's Senior V.P. of Research Todd Salamone examined the risk to bulls in the wake of a possible sell-off, comparing the current positions of speculators to what was seen just before June's Brexit-induced plummet. While the SPY's recent drop below 210 could be a bearish indicator, call buying is an attractive strategy at the moment, with these bullish options priced much cheaper than puts.

Yesterday we took a closer look at the specific stocks that could stand to benefit most from a victory on either side of the aisle. According to historical performances, travel stock Priceline Group Inc (NASDAQ:PCLN), EpiPen parent Mylan NV (NASDAQ:MYL), and cloud name Akamai Technologies, Inc. (NASDAQ:AKAM) are among the names that could profit most from a Hillary Clinton win. Meanwhile, oil-and-gas concern Range Resources Corp. (NYSE:RRC), retailer Macy's Inc (NYSE:M), and homebuilder D.R. Horton, Inc. (NYSE:DHI) could be set to rally on a Donald Trump triumph.

For traders not holding positions in any of the names above, consider Schaeffer's Senior Quantitative Analyst Rocky White's analysis of how the outcome of this election could affect the performance of the Dow through the end of the year, as well as next four years. The large-cap index clearly shows a preference for a Democratic win.

Finally, it's likely (and understandable) some investors are simply getting tired of hearing or thinking about the election at all. In that case, it may be well worth taking a look at these 30 S&P 500 Index (SPX) stocks that have historically outperformed in the month of November. Meanwhile, beware these 30 November laggards.

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