We could see higher highs this year.
The economy is still strong. Phase one of the trade war is a done deal. Phase two is now underway with the U.S. demanding an end to China subsidizing its state-owned enterprises to end what the U.S. calls cyber-stealing, says CNBC.
Unfortunately, we may also see big drops and heightened volatility in 2020, as well.
In fact, it’s not uncommon in presidential election years.
2000 Election Year
Ahead of the Bush v. Gore election, the Dow Jones fell from 11,400 to around 9,650. The VIX popped from 16.50 to nearly 32.
2004 Election Year
Ahead of the Bush v. Kerry election, the Dow Jones fell from 10,400 to less than 9,700. We also saw a small increase in the VIX before things began to cool off.
2008 Election Year
2008 was an interesting year with the subprime fallout. Obama v. McCain also added to the downside and volatility because of uncertainty. The Dow would fall from 11,500 to 7,500.
2012 Election Year
In 2012, we saw a match between Obama and Romney. While we typically saw increased volatility ahead in most election years, 2012 only saw slight downside in the Dow Jones.
2016 Election Year
As expected, the VIX exploded higher. This time it would run from 12 to more than 22, as the Dow would trend lower. All thanks to uncertainty and volatility.
While investors can make money from the expected downside and volatility, they can also make money on the long side, too. In fact, once election-uncertainty is removed, markets tend to run higher shortly after.
It’s just something to keep in mind if you’re looking for election-based opportunities.
