ETF Trades: Political Uncertainty Coming to an End
By: Christopher Mistal
November 08, 2016
Election Day has finally arrived and perhaps within a few more hours we will know the outcome. This time certainly has been different, but in many respects the market has performed similar to past presidential elections. The market was down in the two weeks prior to the election week. Historically the week before has a bullish bias while two weeks before it was bearish. The market was also up big yesterday, the day before, which has also been the trend since 1952. So what does history have to say about after the election?
In the following chart, November’s performance in “All Years” and Presidential “Election Years” over two time frames are compared. Over the more recent era, 1952 to 2012, November’s performance is very similar whether or not it is an election year. By the end of November S&P 500 has averaged right around 1.5%. Extending data back to 1930, S&P 500 performance in November does weaken, but the full-month remains positive.
[November Seasonal Chart]
Delving deeper into the data we examined S&P 500 performance on the day after Election Day, Election Week, from the close on the day after Election Day to November’s close and December’s close in the following table. The day after Election Day is solidly bearish regardless of timeframe with the S&P 500 posting average losses of 1.12% since 1932 and 0.78% since 1952. Full week performance is modestly bullish using 1932 to 2012 data, but noticeably weaker since 1952. From the close on the day after the Election until the end of November and December, S&P 500 performance is basically mixed, up only slightly more than 50% of the time, although it manages average gains of 0.66% and 1.80%, respectively, since 1952. Incumbent candidate and/or party victories are shaded in light grey. 
[S&P 500 Presidential Election Performance Table]
Political uncertainty should be resolved soon and no matter who claims the White House, Congress is likely to remain split and gridlock will probably continue. Provided economic data does not weaken substantially, the path higher for the market is available.  
ETF Portfolio Updates
No new sector trades begin in the month of November. Oil’s seasonal weak period that typically begins in September does come to an end at the start of November. There is no trade held in the portfolio associated with this seasonality to close out. The short trade was stopped out in September.
Since issuing our Seasonal MACD Buy Signal after the close on October 24, the market drifted steadily lower until yesterday. S&P 500 declined for nine straight days during that time. It was an orderly market retreat that offered ample opportunity to pick up “Best Six Months” related trade ideas at better prices. Weakness was most pronounced within Healthcare and Biotech sectors. iShares NASDAQ Biotech (IBB) was stopped out on November 3 when it closed below its stop loss. It has since rebounded with the broader market, but the specter of further regulation in the sector still remains and could be elevated further following the result of today’s election. SPDR Healthcare (XLV) is the second worst performer in the portfolio and it is on Hold.
iShares DJ US Telecom (IYZ) is the worst position, down 5.4% since addition. This sector, with its relatively stable revenues and dividends is likely under pressure from the potential of higher rates. IYZ is on Hold. CurrencyShares British Pound (FXB), SPDR Financial (XLF) and SPDR Gold (GLD) are also on Hold. FXB, XLF and GLD are also all susceptible to an interest rate hike. Higher rates could lead to a stronger U.S. dollar which could cause FXB and GLD to weaken. XLF could benefit from a steeper yield curve, but a short-term rate increase does not guarantee long-term rates will also rise. 
Core four positions in DIA, IWM, QQQ and SPY, used to trade our Tactical Seasonal Switching Strategy (Best Six/Eight Months), can be considered on dips below their respective buy limits or at current levels. All other positions not previously mentioned can also be considered on dips below their respective buy limits or at current levels. Please see table below for Buy Limits and Stop Losses. Please note that Current Advice is based upon closing prices from November 7. Positions may now trade above their buy limit.
[Almanac Investor ETF Portfolio – November 7, 2016 Closes]
Disclosure Note: At press time, officers of the Hirsch Organization, or accounts they control held positions in FXB, GLD, IBB, IWM, IYT, QQQ, SPY, VNQ, XLB, XLF, XLP, XLV and XLY.