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Stocks Soar on Election Day as Markets Brace for Volatility

Harry November 6, 2024

Stocks rose at the opening bell on Tuesday as Americans headed to the polls to decide another contentious presidential election.

For a long time leading up to the election, traders and tacticians tried to ignore the outcome’s potential impact on the prices of various asset classes and the future health of the economy. The so-called Trump trade is just one example of this activity.

Happily, individual investors are better served by not participating in this arguably neurotic behavior. Because when it comes to long-term investing, it doesn’t matter which party holds the White House.

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But let’s get back to Tuesday’s action, which took place perhaps a few days before the winner of the election was announced. Markets are thought to provide a real-time indicator of candidates’ perceived chances of winning the Electoral College.

While it’s smart to pay attention to market signals, that doesn’t make them a crystal ball.

Blue chip in the middle of the session Dow Jones Industrial Average It rose more than 400 points, or 1%, to 42,199. wider S&P 500 technology-heavy index gained 1.1% Nasdaq composite increased by 1.4%.

All 11 sectors of the S&P 500 rose. consumer discretionary, industrialists And technology. As always, the technology sector led the way 7 amazing stocksmost importantly Nvidia (NVDA) And Tesla’s (TSLA).

In case anyone misses this, Nvidia added to Dow Jones Industrial Average It will be valid on Monday, November 8. Led by famed Trump advocate Elon Musk, Tesla has always been a volatile stock. TSLA’s five-year beta is 2.3 and its all-time maximum drawdown is 73%.

On a day like today, it’s not unreasonable to be skeptical of the predictive value of TSLA shares.

In conclusion

“There is no clear consensus around important questions like ‘who will be President’ and/or ‘which party will control the House and Senate,'” co-founders Nicholas Colas and Jessica Rabe write. DataTrek Research. “Whatever the results are, it will therefore come as a surprise to many market participants.”

What does this mean? There is no trading here for individual investors. While today’s market action will provide some signal, it will also introduce a lot of noise. So sit tight. It was already established at that time inside The market is much more important than the timing of the market.

Take a look at the table below, Schwab Center for Financial Research. No matter which party governs Washington, sustaining investment has proven to be a superior method of creating wealth.

stock selection

(Image credit: Schwab Center for Financial Research)

But wait, there’s more. Here’s another chart from Schwab showing the same point going back to 1948.

stocks

(Image credit: Schwab Center for Financial Research)

As for where the market goes from here?

Let’s hear from DataTrek again: “Going into Election Day 2024, the market structure is as follows: 1.) Technology is driving the S&P much more than it did in 2016 and 2020; 2.) stocks will be a major driver of earnings growth over the next three years.” evaluates acceleration over four quarters; and 3.) expected volatility is unusually high relative to previous bull market elections.”

What’s really exciting, DataTrek says, is that even if it’s not an election year, the market structure will likely be the same.

Markets may favor some outcomes over others, but they more or less accept reality and then try to understand how that reality will change in the future. Good luck with this. Happily, the long-term trend of U.S. stocks has always been up and to the right.

Meanwhile, traders and tacticians will have to wait like us normals. Retail investors, as always, would do well to remain cool.