The election is (mostly) in the rearview mirror, and sure enough, the markets have reacted violently—as I wrote and talked about a few times in recent weeks, presidential elections have become something of a market-wide earnings report during the past decade, and this one looks like no exception … and that says nothing about the continued stream of earnings reports and the Fed’s 25 basis point rate cut yesterday.
To some extent, the effects of all the news still have a ways to play out, but given it all, I thought now would be a good time to simply relay a handful of post-election market thoughts and highlight certain sectors, things to watch and, of course, a handful of investment ideas.
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Post-Election Thoughts & Breakout Candidates
· The first thing I noticed Wednesday morning was a “sector” with a ridiculously nice long-term setup breaking out on the upside. I’m talking about small caps—the Russell 2000 (IWM) has etched not just a nice three-month rest but a three-year base (basically since the market top in 2021). Now it’s lifting to its highest level since back then—this could be yet another longer-term breakout that could lead to a nice trend.
· I also think cyclical and financial stocks could be ready to move—partly because many (outside of those building data centers and semiconductor plants) are underloved, and partly because cyclical strength is what was seen after the 2016 Trump victor (admittedly that was much more of a surprise). One idea here is the Regional Banking ETF (KRE), which made no net progress for nine or 10 months but lifted off to its highest levels since early 2023 this week.
· What about growth stocks? I’m still bullish, and it’s nice to see my Aggression Index (growth-oriented Nasdaq vs. defensive consumer staples) pick up steam—you can see the Index has been riding its 25-day line higher for a few weeks now and popped this week
· That said, growth stocks right now are much more about earnings season than the election—so far, reports have shown more good than bad action but there have definitely been some potholes. My main focus now is on “fresher” names, including more recent IPOs, that have changed character after earnings. One of the more obvious names on that front is Reddit (RDDT), the world’s online message board platform that is showing amazing growth. I’m not chasing it here but if it settles down/hacks around for a little bit, I could take a swing at it.
· Obviously, I’m watching a ton of indicators and stocks, but there are two things I’d keep an eye on in the near term. The first is interest rates, which have been trending higher again and popped after the election results, though they did meet some resistance. My gut feel is if the 10-year Treasury yield gets above 4.50% in any meaningful way the market could, at the very least, use it as an excuse to pull back.
· The other thing I’m keeping my eyes on in the days ahead is one of the most watched indexes out there—the Nasdaq 100 ETF (QQQ), which, despite the superb performance, has actually been stymied by the 500 level since July. That barrier broke on Wednesday after the results, and that’s all to the good—but I’ll be watching to see if QQQ can hold/extend the gains from here, as a failed breakout could change the market’s tenor.
· Now, most of the above has to do with the immediate past (reaction to the election and the Fed) and some near-term signposts. But I wanted to end on a bigger-picture note: No matter who wins the election and what party controls Congress, the market hardly ever completely changes character on an election result—and given that the major trends of the indexes and so many leading growth stocks were up, there’s no reason that won’t continue. Indeed, while I’m not into predictions, I continue to think the stage is set for a great 2025, especially for growth stocks, as that complex is “only” a bit over a year into a recovery after the horrid 2021-2023 period.
To learn which stocks I’m targeting now to take advantage of this surge in momentum, subscribe to Cabot Top Ten Trader or Cabot Growth Investor today.
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