Technology stocks have been the generals of this market. So it makes sense to look at them before the midterm elections, especially since the surprising announcement from Apple last week has colored many tech stocks.
To read about Apple AAPL, -2.84% and the contrasting reactions from the smart money and the momo (momentum) crowds, please see: “The ‘smart money’ is staying neutral on Apple.” Apple’s stock today (Monday) sank once again, at one point slipping beneath $200. The stock was trading for $222 just on Thursday.
Read: Apple stock on track for worst two-day stretch in nearly six years amid iPhone XR concerns
Forecasting the election results is a hazardous business. And predicting stock market reactions to an election is doubly hazardous. The Arora Report was a rare service that called not only Brexit results correctly, but also correctly bought the market dip. When Wall Street had ordained Hillary Clinton as the president before the election, The Arora Report was again a rare service to not buy into it. On Trump’s victory, The Arora Report gave a buy signal at a time when many were predicting doom for the stock market.
So what is The Arora Report saying about the midterm elections? Let’s examine with the help of a chart.
Chart
Please click here for the chart of money flows in 11 popular tech stocks. Please note the following:
• The money flows correctly called the recent dip in tech stocks. Please see “Heed the early-warning signal in 11 popular tech stocks’ money flows.”
• The chart shows that the money flows in Apple are neutral, but the momo crowd money flows are negative. If Republicans win big, it will strengthen Trump’s hand in negotiating with China. Any favorable trade deal with China will have a positive impact on Apple, Intel INTC, +1.83% Advanced Micro Devices AMD, -1.63% Microsoft MSFT, +1.27% and Nvidia NVDA, -1.47% The chart shows both smart money and momo crowd money flows in these stocks.
• The chart shows that money flows in Amazon.com AMZN, -2.27% are neutral but mildly positive in Facebook FB, -1.11% and Alphabet GOOG, -1.67% GOOGL, -1.47% Trump is again talking about antitrust actions against Amazon. This time he is also adding Google and Facebook to his list. If Trump’s team wins big, these stocks may see negative headlines from time to time and come under pressure.
• Tesla TSLA, -1.45% has neutral smart money flows but will benefit if Democrats win big. Democrats tend to be more pro-electric cars — and pro-environment.
• Smart money flows are mildly positive in Alibaba Group Holding BABA, -2.00% If Trump’s side wins, a trade deal may occur sooner and that may be positive for Alibaba.
• Netflix NFLX, +2.05% is not likely to be directly affected by the election.
• The consensus now is that irrespective of who wins, the market will rise. The reason is that the market hates uncertainty, and after the election is over, the uncertainty will be lifted going into a seasonally strong period. However, there are three big reasons for caution, so please read on.
• The consensus is that if Republicans win, the market will go much higher than if Democrats win.
Nigam Arora answers your questions about investing in stocks, ETFs, bonds, gold and silver, oil and currencies. Have a question? Send it to Nigam Arora.
Rankings
The chart also shows the relative rankings of the 11 popular tech stocks. Those rankings are based on the six screens of the ZYX Change Method. Please click here to learn about the six screens.
Risk-adjusted rankings are more useful for medium- and long-term positions. Non-risk-adjusted rankings are more useful for short-term or trade-around positions.
ETFs
Money flows in broad-based ETFs such as the SPDR S&P 500 ETF Trust SPY, +0.55% Invesco QQQ Trust QQQ, -0.25% (which tracks the Nasdaq 100), and the iShares Russell 2000 ETF IWM, -0.08% have been mildly positive. Cumulative money flows in the 30 constituents of Dow Jones Industrial Average DJIA, +0.76% have now turned neutral.
What to do now
In addition to tech stocks, the election results will provide opportunities in many other sectors. For example, defense stocks, represented by the iShares U.S. Aerospace & Defense ETF ITA, +0.61% may move with specific opportunities in Lockheed Martin LMT, +1.31% Northrop Grumman NOC, +2.06% Raytheon RTN, +0.83% and Boeing BA, +1.18%
Industrial stock such as United Technologies UTX, -0.14% and Caterpillar CAT, +0.49% may benefit from a Republican win. Health insurers such as Centene CNC, +1.90% Molina Healthcare MOH, +1.40% and WellCare Health WCG, +1.16% may benefit if Democrats win.
Pharmaceutical stocks such as Pfizer PFE, +1.37% Eli Lilly LLY, +3.18% and Merck MRK, +1.18% may not like a Democrat win. Biotech ETFs such as the iShares Nasdaq Biotechnology ETF IBB, -0.06% and the SPDR S&P Biotech ETF XBI, -0.54% along with companies such as Amgen AMGN, +1.53% Celgene CELG, +0.11% and Regeneron REGN, +0.66% may get hurt if Democrats win.
Very-short-term traders may find opportunities in leveraged ETFs such as the Direxion Daily S&P Biotech Bull 3X Shares LABU, -1.67% and the Direxion Daily S&P Biotech Bear 3X shares LABD, +2.41%
The foregoing are just a few opportunities that may arise both in the long term and the short term. Investors may want to note that irrespective of the stock market movement after the election, there are headwinds from rising interest rates and slowing earnings growth. The character of the market is likely to change over the coming years compared to the rip-roaring bull market of the past nine years. Investors need to de-risk their portfolios in a measured way and fine-tune their skills as well as resources now to get ready for what is to come.
Disclosure: Subscribers to The Arora Report may have positions in the securities mentioned in this article or may take positions at any time. Nigam Arora is an investor, engineer and nuclear physicist by background who has founded two Inc. 500 fastest-growing companies. He is the founder of The Arora Report, which publishes four newsletters. Nigam can be reached at Nigam@TheAroraReport.com.
