With only 11 trading days remaining before November 3, we’d be remiss if we didn’t mention at least something about the upcoming election and the potential impact on the markets. Regardless of your preference toward one side of the aisle versus the other, many agree that more volatility is likely over the coming two weeks (for example, both Robinhood and Interactive Brokers have recently sent client notices indicating higher margin requirements due to anticipated increased volatility). Can we be so sure? Let’s take a look at the last four presidential election periods for possible precedents.

To make sense of all of the arrows and stars and colors (oh my!), allow us to explain. Each of the five individual daily charts above display the two months preceding and the two months following the respective election dates (2004, 2008, 2012, 2016 and 2020) with the S&P 500 (ES=CME E-Mini S&P 500 futures contract) graphed on the top and the volatility index (VX=CBOE volatility/VIX futures contract) shown on the bottom. The mid-October date (relative to today) is identified with the white arrow and the election dates are plotted with gold stars. As you can see, all five charts saw a gradual decline in the S&P 500 as we approached the election date (although we’ve seen an upward move over the last few weeks) with four out of five experiencing declining volatility (the ’08 market meltdown being the exception). Then all four of the last elections periods saw a multi-week bullish move in the markets following the actual election date. Political uncertainty mitigated (regardless of the winning party)? Santa Claus rally? For position traders like us, this is very interesting. Nonetheless, we’ll continue to follow the outputs from our trading models for specific decisions.

Forte Strategy Update

We executed 3 trades last week for a net loss of 0.5% compared to a gain of 0.2% by the S&P 500. Our YTD net results so far equal a 3.6% gain compared to a 7.8% YTD gain for the S&P 500. Our YTD max drawdown is 9.5% compared to 33.9% for the S&P 500.

More details about our trading activity can be found by registering on the Collective2 website and searching for Forte Strategy. A running list of these email blogs and general information about Maestro Capital Research can be found at maestrocapitalresearch.com.