As widely expected, Barack Obama will become the 44th President of the United States on January 20 after a landslide win in the election. With the lopsided win, there is a lot riding on what President-elect Obama will need to do with a recession coming and the global economies on fragile ground.
The days leading up to the election saw buying in spite of the poor economic data, but with the election over, we expect stock markets will again shift their focus to the fragile economy. With Thanksgiving coming up in a few weeks, the key post- hanksgiving shopping season will be in focus. Already, retailers have warned about soft sales and we have seen weak consumer confidence. Now, this may have been factored into stocks, but with the recent rally above multi-year lows, we feel that markets could pull back if the economic situation worsens.
The key will be the ability of major stock indices to hold above the multi-year lows, which may be a near-term bottom. We sense that markets will trade sideways if the lows can hold. In a case like this, a buy and hold stock strategy may not make much sense, but rather looking at buying on dips and selling on rallies may make more sense. But again, the key will be limiting your risk.
Using an analogy from baseball, you should have free cash available and do not go for the home run hit. Playing “small ball” like hitting singles and doubles to generate runs probably makes sense in this investing climate. But if you are a long-ball hitter, you want to make sure you do not bet the farm. In times of high market risk, the keys are capital preservation and having enough capital to trade another day when stock markets improve. Let’s see how markets play out with the new leadership.