Election-Proof Your Portfolio – 4 Moves to Consider Now

After what seems like a lifetime, the 2020 Presidential election cycle is finally coming to an end. As the candidates flood the airwaves and internet with closing messages, financial markets have taken a decidedly uncertain posture. After all, the market HATES the unknown.

Unfortunately, there are many more unknowns these days than knowns.

We do know that despite the rancorous political environment, the nation is still struggling with the Covid-19 pandemic and the resulting socio-economic fallout.

Mass unemployment and business-cycle disruption have led to one round of government stimulus. And while the government’s effort was historical in size and scope, there’s little argument against the need for additional measures.

Getting there, however — especially in the home stretch of an election year – is easier said than done. Progress in Washington makes traffic on the I-95 corridor look fluid. Really all we can do here is stay tuned.

One known we probably can take to the bank (literally) is that regardless of the election outcome, the U.S. Treasury — hand in hand with the Federal Reserve — will turn on the stimulus spigot big time. It’s not so much a political matter. It’s an economic one.

But how can we investors prepare and position for the elephant (or donkey) in the room? I’m referring to the election, of course. I’m glad you asked. Here are three things you can do now.

1. Sell some stocks to raise some cash ahead of election day. Cash doesn’t pay much, but neither does it turn red in a correction. There will be more volatility between now and November 3. And if election results are slow in coming or are contested, expect the volatility to continue after that. Cash adds ballast to the portfolio and gives you dry powder to scoop up bargains as they arise. How much cash? It depends on your comfort level. If you have none, get some — at least a 5% position. If you’re already at 5%, look at increasing it to 8% or 10%.

What to sell? Depends. It’s okay to take partial profits and offset those gains with losses from underperformers. Don’t wait for a down day or an up day in the overall market. Take the emotion out of it and be disciplined. Just do it. Today or tomorrow, if you can.

2. Biden Blue Sweep – If Joe Biden prevails, the Democrats keep control of the House of Representatives and manage to flip the Senate, that gives the new President the springboard he needs to mobilize his agenda. Armed with an actual, long-term energy plan, clean energy-facing stocks will perform well. Some of the better names, each of which we’ve recently written about in these pages: Emerson Electric (EMR), Honeywell (HON), and, believe it or not, BP Plc (BP).

Healthcare Services and Providers like CVS Health (CVS) should benefit from healthcare reform expansion. Expect healthier relations with China would benefit the likes of fast-food giant Yum Brands (YUM). Lastly, a bold infrastructure plan would be built into any energy deal, which would boost the fortunes of Caterpillar (CAT) and engineering/project manager Fluor Corp (FLR).

3. Biden Wins, Dem House, GOP Senate. Not much changes in this scenario with the exception of a friendlier operating environment for internet companies – with the likes of Amazon (AMZN) and Google (GOOG) perhaps getting a slight reprieve from anti-trust scrutiny. It won’t last long, though. A GOP controlled Senate would likely be much thinner than in years past. And if sitting senators want to keep their jobs and their majority, they will learn how to work across the aisle in any “new morning in America.” In any event, it’s hard to imagine things getting more contentious than they already are.

4. Trump re-elected, GOP Senate, Dem House, aka: status quo. If the scorecard stays the same (doubtful based on current betting odds but it could happen), expect carbon-based energy to get some relief. Of the big oilers, Exxon Mobil (XOM) is one of the best run names out there. Continued deregulation combined with massive fiscal stimulus would be a further boost for financial stocks. Recently, consolidation has picked up with wealth management giant Morgan Stanley’s (MS) acquisition of money manager Eaton Vance (EV). Watch for more of this. With a known global franchise, money manager Invesco Ltd. (IVZ) is a ripe target.

With a continuation of the economic cold war with China in a second Trump administration, the U.S. government will likely continue to subsidize agriculture. Equipment maker Deere and Co. (DE) is an obvious beneficiary.

And in typical GOP fashion, deregulation will continue to rule the day. That could be good news like for the likes of tech and telecom stalwarts AT&T (T), Alphabet (GOOG), Amazon (AMZN), and Microsoft (MSFT), et al.

A contested outcome? Check that cash position and fasten your seatbelts. It’ll be a bit bumpy. But we’ll get through it.