That was the startling news investors woke up to on Friday.
This year has already seen a whirl of surprises – a global pandemic… protests and riots across America… a stock market crash… a new bull market… and now this.
It’s not just the president who’s been infected…
Eight of his close political allies have also tested positive. Among them are former White House counselor Kellyanne Conway, his 2020 campaign manager Bill Stepien, RNC head Ronna McDaniel, his debate prep partner and former New Jersey governor Chris Christie, and Republican senators Mike Lee and Thom Tillis.
Here at the Cut, we don’t do partisan politics. You can get your fill of that in the mainstream press and on social media.
Our mission is to help you grow your wealth with the best investment intelligence from Teeka Tiwari, Jeff Brown, Dave Forest, Nick Giambruno, Dan Denning, Jason Bodner, and the rest of the Legacy Research team.
Right now… that means making sure you own some gold to protect yourself against the bout of stock market volatility we’ve been warning is on the way.
It measures how stormy the market is for investors.
When the waves are calm… stock prices aren’t moving much. And volatility is low. But when a storm picks up, the waves get rough… and stock prices start to lurch around again. That’s when volatility is high.
Right now, we’re heading from calm seas… into stormier waters.
You can see that in the spike in the CBOE Volatility Index (VIX) after the news of the president’s health broke on Friday.
Also known as Wall Street’s “fear gauge,” the VIX measures investors’ expectations of volatility in the coming 30 days.
As you can see, following news of Trump’s condition, it’s on the rise… meaning investors are starting to prepare for a storm.
There are two reasons to expect volatility to head higher from here.
Regular readers will recall research I (Chris Lowe) shared a couple of weeks back from colleague and former Wall Street trader Jason Bodner.
He showed how the S&P 500 has followed an eerily similar pattern in each of the past seven U.S. presidential elections.
Take 2016…
Stocks sold off heading into the election. It’s not until the results were announced that they took off again.
In the chart above, the blue shaded area tracks the S&P 500. The yellow line shows the big-money flows in and out of stocks Jason tracks. The vertical light blue line marks Election Day.
As you can see, stocks dropped going into the election. Then they surged after the winner was announced.
This isn’t a one-off phenomenon. Something similar happened in 1992, 1996, 2000, 2004, and 2012. (2008 was the year of the global financial crisis, but stocks still surged four months after the election.)
None of the above accounts for the unusually high partisan nature of this year’s election… or the effects of the pandemic.
Stocks fall going into a U.S. presidential election because investors hate uncertainty. Not knowing who’ll be the next president causes uncertainty to spike. So investors rein in risk.
And this year, we’re in for an extra dose of uncertainty…
Voting with a virus on the loose is not something we’re used to. Voter behavior changes – for instance, they’ll mail in more ballots. And in the first debate last week, President Trump refused to rule out contesting the results and asking the Supreme Court to weigh in.
The last time this happened was in 2000. Democrats wanted a recount of votes from Florida, which Republicans were claiming as a win.
The Supreme Court weighed in on the side of Republican candidate George W. Bush. But that ruling didn’t come down from the court until December 12… more than a month after Election Day.
A contested election this time around… with counts in multiple states under review… could draw out the process for months.
That would mean extra-high levels of uncertainty in 2020.. and extra-high levels of stock market volatility.
The mega crashes of 1929, 1987, and 2008 all happened in October.
And of the 10 largest single-day drops for the S&P 500, half occurred in October.
As you can see, investors lost as much as 20.5% in a single day in October 1987.
And going back more than three decades, the weeks following the first and third Friday in October have been the worst for investors.
They’ve seen an average drop of 12% and 18% respectively.
There are still moneymaking opportunities – in crypto… tech… pre-IPO deals… the cannabis legalization wave… and the breakthroughs happening in medicine and biotech.
But that doesn’t mean you should stop thinking of protecting your downside risk.
It’s something our commodities investing expert Dave Forest has been hammering on lately for his readers. Dave…
Historically, October is a “witching season” for market crashes. It’s almost a self-fulfilling prophecy. Everyone worries. Selling pressure can quickly accelerate into a runaway collapse. Typically, when this happens, people rush out of stocks… and into gold.
Over the next three years, gold rocketed from $724 an ounce to more than $1,900.
That’s a 162% gain.
It wasn’t a straight shot higher. As we’ve been showing you, gold tends to dip in the initial stages of a crash, as overleveraged investors liquidate their positions to cover margin calls.
Gold dipped 12% in March. But it’s gone on to deliver roughly six times the gains of the S&P 500 this year.
It did what it was supposed to do, in other words. It disaster-proofed your portfolio.
Our advice on gold remains the same… Buy the dips and hold for the long run. It’s a great way to offset temporary tumbles in the stock market when they come along.
On Thursday at 8 p.m. ET, colleague Teeka Tiwari will lift the lid on a strategy he’s using to play the volatility window on its way.
Then he’ll show how you can make the same amount of money from this 28-day window that other investors would have had to wait 39 years for.
Teeka says it’s one of the weirdest discoveries of his career… and he’s going to reveal all – for free – Thursday at 8 p.m. ET.
I’ll be there to check it out. I hope you can make it, too.
If you sign up right now, Teeka will send you some bonus gifts to get you started. Just go right here to learn more.
Regards,
Chris Lowe
October 5, 2020
Bray, Ireland