These Two Markets May be Bullish Post Election
John is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
With the election coming soon plus the QE3 taking affect, watch the markets in the short term remain neutral to mildly bullish. There are reasons for this and also nice investment opportunities. Let’s take a look at what is influencing the markets through the end of the year and some investing advice based upon how QE3 will affect certain markets. Take a look at gold and the tech industry and see what will happen.
Look for a Neutral to Mildly Bullish S&P 500
The S&P 500 SPDR (NYSEMKT: SPY) was been rising continually and it is in its second leg of a typical bullish run. Last week the markets were fairly flat, but this is a typical move for a post QE time period. After an announcement, markets tend to consolidate like they are now before they continue to move up. There is nothing bearish about the market right now. We have profit taking going on but it is not very bearish, soon we should see bullish buying kick in again. This is how the pattern emerged for both QE1 and QE2.
But if we look past the election, the cloud may look a bit darker. It does not take a rocket scientist to understand that during this election cycle, the powers that be are going to do all they can to keep the markets calm to mildly bullish—no matter what it takes. Greece needs to give a report on the troika and it is not supposed to be overly positive. So it makes sense that Washington is not in favor of any reports before the election in November. The potential for a Greece failure and negative global is a real possibility here that Washington does not want to deal with before November. So it looks like the EU and the US are teaming up to keep things quiet until after the election. That’s when things will start getting bad if they get bad at all. Before the election—bond sales will be successful (Spain is selling ~27 billion EUR in October); banks will stay solvent regardless of the ongoing run on Spanish and Italian banks.
So what may the consequences be for the near future before the election? There isn't much that's likely to send markets much lower in the near future, especially as long as the already not great fundamentals don't materially worsen.
Watch Gold Continue to Climb after a Pull Back
We are going to watch gold (NYSEMKT: GLD) continue to do well. The yellow metal has continued to move up since mid-August in anticipation and rumors of QE3. Recently topping out, I would expect the metal to possibly have a pull back during this artificial calming affect pre-election. But as we get closer to the end of the year and the news of how the struggle really is in Greece and possibly Spain, we will see the metal move up again after forming a nice bottom. Gold has moved up in the last two QE’s and it will do so this time.
Move Out of Money Investments
If one is invested in currency, it may be wise to rethink where that money is going. The PowerShares DB USD (NYSEMKT: UUP) has continually moved down through mid-September which is understandable with the devaluation move. But I expect that with the artificial softening of the markets, the dollar may rise again (even if it is for a short time) and we will see the UUP also rise but it won’t last long. One sector that performed well was the Technology sector. The Technology SPDR (NYSEMKT: XLK) consistently outperformed the S&P 500 and the Dow Jones during the last two QE’s. There is a very good reason for this. Big tech firms like Microsoft, Apple, and Oracle have benefited in the past from the easing as global powers and also because of the easing of the currency exchanges. The lower dollar raises the overseas global profits for the company.
The markets will be artificially propped up for the next seven weeks and then we shall see what the post-election news brings us. Watch Gold continue to climb after the election and stay close to the Technology SPDR, it may benefit over the next few months also.
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