*****Looking back, investors should feel pretty good about the stock market’s performance last week. We saw: a massive 890 point rally, two consecutive up days to end the week, and 958 total points gained.
And this came despite some poor GDP news and ahead of a Presidential election.
Evidence is building that we may have a nice rally on our hands.
*****It’s always a positive to see stocks rally in spite of bad economic news. When stocks fall on bad news, it suggests investors have been taken by surprise. Whatever the negative news is, it’s not accounted for in expected earnings and, hence, not reflected in stock prices.
When stocks rally after bad news, it suggests that the bad news is already reflected in stock prices. And when you get "not-as-bad-as-we-thought-it-would-be" news like the better-than expected GDP number, there’s potential for investors to start thinking about some upside.
We’ve seen outright panic in the financial markets. We’ve seen forced selling from margin calls and fund redemptions pull stock prices to multi-year lows. Heck, even Warren Buffett’s Berkshire Hathaway is down 22% this year.
But I also know that some individual investors have kept level heads and are even looking for opportunity in this market. I’ve read all of your letters. Not once has a Daily Profit reader said they’ve sold everything. The vast majority of you have written with suggestions or questions about which sector and stocks look like money-makers right now.
And in my opinion, that’s exactly what you should be doing. Anytime there’s a panic, some stocks will get knocked down too far. I believe Chesapeake Energy (NYSE:CHK) is one such stock. I think the same is true for the MLPs. We’ve talked about the opportunity in some biotech and oil stocks. If this rally can continue, we’ll see the rewards of our opportunistic approach.
*****Tomorrow, the stock market is getting a major source of uncertainty out of the way. With any luck at all, when we get to work on Wednesday, we’ll have a new President of the United States. And that should extend the rally that started last week.
The stock market hates uncertainty. And investors have had plenty of uncertainty to deal with in regards to stocks. Not only were investors pricing in the financial crisis and recession, the policies of each candidate could have significant, and very different, effects on the stock market.
Health care, defense, oil, biotechnology and alternative energy are each areas that could go one way or the other, depending on who’s elected. Tax policies are another key difference between the candidates.
Now, we all know that one candidate has been leading in the polls. We also know that polls can be misleading. It’s a near certainty that stock prices currently reflect the worst-case scenario for each candidate.
So once the election is over, and it becomes clear that the new President’s policies won’t be adopted overnight and that change is a slow process, I expect stocks to rally.
Of course, some stocks will do better under Obama, while some will do better under McCain.
I’ve got a Special Report that details exactly which stocks I think will benefit the most from our next President. There are three recommendations for Obama and three for McCain. It’s called Election 2008: 6 Stocks for Profits from the Next President. If you’d like to get your hands on our top recommendations for the next President, you can get the details here.