| | | | Buyout Blackout Ending
First, don’t miss today’s Daily Chart Setup trade idea down lower in this newsletter.
The majority of S&P 500 companies are exiting the buyback blackout. Will this mean we’l see markets move higher, or are we in for more choppiness?
Come join me as we dive in and see what’s moving!
Plus, as always, we have stocks popping and dropping so come find out what is moving this morning as I look for stocks and do some live premarket analysis on SPX, SPY, NDX, QQQ, Russell, IWM and other stocks that are potential plays for the day.
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Presidents, Spending Cuts and the Market: How Political Uncertainty Creates Trading Opportunities
Every election cycle sparks the same market fears — uncertainty over policies, taxes, and government spending. This year, those fears are amplified by a looming $2 trillion deficit and the potential for deep spending cuts.
But while politics can drive short-term volatility, the real opportunity lies in understanding how government spending — or the lack of it — impacts the economy and different sectors of the market.
The Political Cycle and Market Volatility
Historically, markets don’t like uncertainty, and presidential elections deliver plenty of it. Investors worry about tax policies, regulations and shifts in government priorities.
The result? Increased volatility, which can create trading opportunities.
Take the Russell 2000, for example. Small caps often underperform leading up to an election as investors hesitate to take on risk. But once the uncertainty fades, they tend to rally — regardless of who wins.
That’s because, over the long run, economic fundamentals matter more than political leadership.
Still, certain sectors respond differently based on policy expectations. Health Care (XLV) often faces pressure when Democrats push for drug pricing reforms, while defense stocks tend to perform better under Republican administrations.
And when political gridlock takes hold, market winners are often sectors that benefit from stability, like Utilities (XLU) and Consumer Staples (XLP).
The $2 Trillion Question: Will Spending Cuts Hurt Growth?
The bigger issue for markets isn’t just who wins in November — it’s what happens to government spending afterward.
With a deficit surpassing $2 trillion, both parties face pressure to rein in spending. But aggressive cuts could slow economic growth and send ripple effects through the market. After all, government spending is a major driver of GDP, particularly in areas like defense, infrastructure and health care.
Look at past crises: Stimulus spending played a huge role in recovering from the 2008 financial collapse and the COVID-19 crash. Slashing budgets in key areas could weaken demand, slow hiring and hurt sectors that rely on government contracts.
That includes Industrials (XLI), Health Care (XLV) and Defense.
On the flip side, excessive government spending fuels rising debt, which can keep inflation high and force the Federal Reserve to maintain elevated interest rates. That’s bad news for growth stocks, particularly in Technology (XLK), which thrives in low-rate environments.
Where to Find Market Opportunities
For traders, the key isn’t predicting election results — it’s tracking where government money is going.
If defense budgets are slashed, names like Lockheed Martin (LMT) and Northrop Grumman (NOC) could take a hit. But if infrastructure remains a priority, stocks like Caterpillar (CAT) and Vulcan Materials (VMC) stand to benefit.
Meanwhile, if the Fed keeps rates high due to fiscal concerns, investors may want to favor dividend-paying stocks in Utilities (XLU) and Consumer Staples (XLP) over high-growth tech names.
The bottom line?
Political uncertainty may cause short-term market swings, but long-term investors who focus on spending trends — rather than election headlines — will be the ones who come out ahead.
Now be sure to join me live at 9:15 a.m. ET for “Morning Monster,” my market-open livestream on YouTube!
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