Your Election Season Battle Plan

Shah Gilani|July 5, 2024

We’ve crossed the threshold into the second half of the year.

With the election now right in front of us… the chatter around candidates, policies, and their perceived impacts on the markets will reach a fever pitch.

Add to the mix the influence of AI on political advertising and campaigns as well as on market dynamics (and everything else!)… and madness could ensue.

Here’s what’s really at play… and how we can cut through the noise to find solid opportunities.

Uncertainty Is Certain

The stock market loves certainty… and hates uncertainty.

Election years inject uncertainty into the markets because candidates propose policies that could impact various sectors in different ways.

For instance, discussions around tax policies, healthcare reforms and regulatory changes can cause volatility. The volatility is often made greater by media narratives that tend to oversimplify the potential outcomes.

As investors, we can’t get swept away by election-year narratives. Yes, narratives are important… especially in short-term trading, as I’ve been telling you. Traders and investors make buy and sell decisions on the shape of those narratives.

But sometimes narratives change on a dime… and those changing narratives can lead to head-fake buy and sell signals.

That’s going to dominate this election season.

So here’s what to do…

Get in Focus

Focus on company and market fundamentals.

Look at how companies are positioned within their industries. Look at their revenue streams, profit margins, and management quality.

A company that is well-managed and profitable will likely weather political storms better than one that isn’t.

When it comes to market direction, your fundamentals are distilled down to technicals… as in technical analysis. What’s the trend for stocks… interest rates… bonds… commodities, etc.

But the growing use of AI in trading algorithms and market predictions has added a new layer of complexity to investing.

AI can process vast amounts of data and make split-second decisions. That can amplify market movements beyond what traditional fundamentals might justify.

This means we often see short-term volatility that doesn’t reflect a company’s true value or long-term prospects. As investors, we must resist the temptation to react to these fluctuations.

Dig Deeper

Again, look for companies with strong fundamentals. I’m talking about solid earnings growth, manageable debt levels, competitive advantages in their industries, and consistent cash flow generation.

These are the companies that tend to perform well regardless of short-term market gyrations or election-related uncertainties and changing narratives.

Research and understand the businesses you’re investing in. Don’t rely solely on headlines or speculative opinions.

Dig deeper into financial statements, industry trends and management track records.

This knowledge will serve as your compass amid the storm of election rhetoric and AI-driven volatility.

And remember that volatility creates opportunities.

Market swings driven by election news or AI-driven trading can create buying opportunities for long-term investors. When good companies go on sale due to short-term market irrationality, it’s a chance to buy at a discount.

Warren Buffett famously said, “Be fearful when others are greedy and greedy when others are fearful.”

This timeless advice holds true in election years and amidst the growing influence of AI.

The presidential election and the rise of AI may cause short-term fluctuations in the stock and bond markets. While traders will certainly take advantage… disciplined investors who focus on fundamentals can cut through the noise and find solid investments.

By staying grounded in what really matters – the health and prospects of the companies we invest in – we can navigate these uncertain times with confidence.

If you want help doing that, just keep reading Total Wealth.