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Post-Election Markets

12/16/2012 8:00 am EST


Jeffrey Hirsch

Editor-in-Chief, The Stock Trader's Almanac and Almanac Investor

Jeffrey Hirsch reviews what history tells us about the post-election stock market and why the four-year Presidential cycle is something that traders and investors should understand.

My guest today is the expert of seasonal trades, Jeffrey Hirsch, of Stock Trader’s Almanac and we’re talking about post-election market and what’s going on here towards the end of the year; maybe into January as well, so Jeffrey, you got a weird market here post-election.  There’s certainty now in who’s president, but there still seems to be a lot of other uncertainty out there.

Well, there’s a lot of uncertainty in the least, there’s a lot of uncertainty in the fiscal area of the United States.  There’s deficit and debt issues over in Europe and we’ve also got just a general uncertainty about getting out of this big recession that we had and the housing market and the job market and all that stuff, but the four-year cycle is the most important; the long-term cycle for us is the one that’s been the most repetitive and this post-election action is not surprising, it’s not uncommon.  We often see November being weak after incumbents win, it’s sort of the sale of the news.  I know Wall Street likes to think that they prefer Republican to Democrats; the data does not bear that out.

The best combination has been a Democratic president and Republican Congress averaging about 19.5% per year; however, we have going forward a split Congress with a Democratic president averaging about 5.5% a year.  Here we are in 2012 with about a 5%, or less now, gain, so it’s quite typical.  What I’m looking for going forward even before the decision on the election was trouble in 2013 and the next several years.  Weakest part of the four-year cycle averaging maybe 2% if you go way back to 1833 or about 4% to the post of next year going back to 1941, and you combine that cycle with the point we are technically in the market, all the fundamental and economic and geopolitical issues we just talked about, and you’re looking at a scary situation.

There’s an old saying my father taught me, year-ends often make great exits.  We’ve seen this before in election years when we had—back in the 1970’s and early 1980’s—we had three different election year basic highs in 1972, 1976, and 1980, and then 1972, 1974 was a horrible bear market; 1977, 1978 was a tough bear market, and then 1981 to 1982 we had that end of the secular bear, so I’m concerned going forward, but there’s things that you can trade and invest in going forward.

All right, is there anything in history that would guide us with post election and a fiscal cliff?  I mean, is this new to the—anything we’ve ever seen before?

I mean, the name is new.  It’s made a lot of headlines on television and papers, but, I mean, there have been other issues before, and the history of these financial crises and these stalemates in Washington is not good.  I mean, we saw it go back that far; 2011 we had that.  Luckily, it was over the summer and we had a bottom in October, but we had crisis in Greece cancel the Thanksgiving trade last year, so it’s not a good history.  What I’ve been saying for a long time is that they’re going to get a lame duck deal of some kind, everyone’s using the kicking the can term.  I don’t care for that.

They’re going to get something that’ll give them some time for the new Congress to take care of something next year in 2013 and come to some agreement.  There’s a lot of opportunities on the table here for both the White House and the Obama Administration and Republican House to make an agreement, and we could get something pretty extensive.  They could trim the Obamacare package as an exchange for getting some taxes—some more revenue increases on the top percentage of the rich people and some trim down of the tax policy, but in reality, we may not get any of it.  That’s why I’m relatively cautious to bearish over the next several years, because these things take several election cycles to work out and the reality is that if we don’t get a deal or if we don’t get something right, we’ll get some new people in, in 2016, and that will be the time it will get fixed.  That’s when I think the next secular bull market is going to start forming.

All right, finally, the investment opportunity here post election; what do you like here?

There’s a few sectors for Obama and the money creation inflation.  We have gold; you can trade silver, you can trade the SLV, you can trade the GDX or even the miners, the junior miners, the GDXJ it is, but I think the easy way is to go GLD.  It’s the second biggest ETF out there.  That’s the gold ETF, that’s a stable---it could be a good part of your portfolio.  Energy, the XLE, which is the SPDR Energy, and I guess is the IXC, I believe, the iShares Energy, the big energy.  Exxon’s going to keep making money.  Obama wants to raise gas prices to counteract climate change and all that sort of thing.  Exxon and friends are going to benefit greatly from that.  We like biotech, the IBV, the NASDAQ.  These are sectors that we think would be good for next year despite general market morass that might be there and also going forward, and also healthcare, and there’s several ETFs in a healthcare proxy, as a healthcare proxy that you can use.

There’s a few stocks we like right now.  Housing is starting to bottom, then oil looks good, a couple specialty energy stocks that we like is Calumet (CLMT) and CVR Energy, which is CVI, and there’s a couple of interesting ways.  There’s some specialty fuel and lubricant companies there that rank really high in our magnet scoring system for stocks.

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