In this week’s analysis, we dive into how recent political events—namely, the U.S. presidential election—have shaken the financial markets and our portfolio. By examining key market movements and providing a breakdown of our portfolio's reaction, I’ll offer insights into the shifts we observed and our strategic response to them. Let's start with a brief overview of the market’s immediate response to election news and then walk through our portfolio moves.
The U.S. Election and Market Volatility
Following the election, the dollar surged as markets reacted to the uncertainty surrounding the transition of power. Initially, we saw a decline across markets, with corrective movements as investors digested the news. From the period of November 4th to the 8th, the markets provided a clear signal: volatility was here to stay for the time being. This rollercoaster week came on the heels of a significant dip on October 31st, followed by a rebound on November 1st. The election itself took place on the 3rd, so as we moved into the week, we anticipated high market sensitivity to any news about the future U.S. leadership.
By mid-week, it became increasingly clear that the market was beginning to price in the likely victor. A substantial jump in the markets on November 6th indicated that investors felt more certain about the result. In response, we recommend a cautious approach for those holding profits post-election, as the upcoming December earnings season could trigger profit-taking.
Key Takeaways on Risk Management
For those following along with our risk assessments over the past months, you’ll know that we anticipated heightened risk during this period. The possibility of a market decline was real; however, with the election outcome now factored in, there's potential for both market stabilization and continued growth. It’s crucial to have exit strategies in place, especially given the historical tendency for markets to experience a brief pullback in early December before rallying later in the month.
Portfolio Performance and Adjustments
Moving to our portfolio, let’s examine how our holdings performed amid these developments and what strategic changes we made.
Bitcoin and Commodities: Bitcoin’s Record Highs Amid Election-Driven Volatility
The recent election drove Bitcoin to all-time highs, as investor sentiment turned bullish. However, with such a rapid increase, it may be wise to consider selling a portion of holdings for those with substantial gains. If you’re a long-term holder with a "buy and hold" philosophy, staying the course is also a valid strategy.
Gold, silver, and other commodities (excluding oil) faced a decline, largely driven by the election’s influence on market confidence. The Federal Reserve’s rate cuts were another factor affecting bond and commodity prices, with rates cut by 25 to 35 basis points. With another rate cut potentially on the horizon in December, we could see renewed activity in Treasury bonds, especially those with long yields. In fact, Treasury bonds currently display promising signals, so we’re optimistic about their near-term potential.
Stock Sales: UnitedHealth, Truist Financial, and Our Take on Overvalued Stocks
This week, we exited several positions that no longer fit our portfolio's objectives:
* UnitedHealth (UNH): Despite being a strong dividend stock, we felt the price-to-earnings ratio had outpaced the broader market, signaling potential overvaluation.
* Truist Financial (TFC): We sold on November 6th during a price peak, following Warren Buffett’s philosophy: when the market retreats, weaker stocks reveal themselves. This proactive approach protected our gains before a significant drop in price.
* GameStop (GME): Initially a profitable trade, GameStop’s erratic movements have led us to exit the position, even at a minor loss. Given the current trend, we expect a continued decline.
* iRobot (IRBT): After holding iRobot through earnings, we finally exited on November 5th. Although the company showed promise during the pandemic, waning growth potential led to our decision to cut this position.
* Neotech Metals: A speculative stock that initially showed promise, Neotech ended up being a losing trade, prompting us to sell and focus on stronger long-term investments.
Strategic Adjustments: A Look at MercadoLibre and FedEx
While selling some positions, we also took advantage of buying opportunities in promising stocks:
* FedEx (FDX): Our FedEx position remains solid, though we sold a few shares to free up funds for upcoming opportunities. With strong end-of-year expectations, FedEx is one to watch as it benefits from e-commerce growth.
* MercadoLibre (MELI): This Latin American e-commerce giant has earned a place in our portfolio. Known as the “Amazon of South America,” MercadoLibre has proven itself as a leader in its region with a significant competitive edge. While recent earnings met revenue expectations, they missed on earnings, creating a buying opportunity for long-term investors.
Final Thoughts
Navigating the post-election market has required a balanced approach between caution and opportunism. Our response was to lock in gains and redirect capital to solidify our long-term positions. With careful portfolio adjustments, we’re well-positioned to leverage upcoming market movements while mitigating risk.
Stay tuned as we continue to monitor the market and refine our strategy. We’ll soon release a guide outlining our “15 Rules for Smart Investing” to help you navigate these complex market conditions.
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