Prepare Your Portfolio Now for Certain Sectors to Skyrocket
Usually, the presidential election is the big news driver of the year.
Of course, 2020 headlines have been all about COVID-19. A global pandemic is one of the few things that can overshadow a U.S. presidential election.
But investors can’t afford to overlook the election. It will impact your livelihood, your retirement savings, and your portfolio… especially if it plays out like I think it will.
Now, I’m not basing my prediction on any personal political bias or what I personally want to happen.
Politics are touchy, especially these days. There are a lot of strong opinions on both sides of the proverbial aisle. That can make emotions boil over, tempers flare up, and widen the political divide.
So with this analysis, I’m operating from the hard data that I have access to. Based on that information, I’m looking at the “writing on the wall.” My job is to look at what’s happening in the world and figure out how to either profit from it or protect your portfolio from it.
That doesn’t require me to have a personal opinion… But it does require me to be aware of what seems inevitable and to react appropriately to it.
So please, if you’re invested in your chosen candidate and you don’t like my prediction, don’t shoot the messenger. But keep in mind… Elections have enormous economic consequences, and November’s election is going to have tremendous implications for the market.
You cannot be blind to the possibility that your favored candidate (whichever side that may be) will lose. You must be prepared.
What the Polls Are Saying
FiveThirtyEight.com compiles and averages national polls every day. Here are the results since March:
As you can see, Biden has had a fairly consistent seven- or eight-point lead for the past few months.
Of course, who wins the presidency isn’t based on the popular vote, but rather the electoral college.
For Biden to win, he has to hold all of the states that Hillary Clinton won in 2016, and flip Pennsylvania, Michigan, and Wisconsin. The average poll in these three states has Biden up by 5%, 8%, and 7%, respectively. In addition, he has one- to five-point leads in three additional states, Florida, Arizona, and North Carolina, which could turn a narrow electoral college victory into a decisive win.
But polls can be unreliable – witness 2016, for example – and a lot can chance in the next six weeks, so let’s look at what people are betting on.
For this, I like to use a real-money betting website called PredictIt.com. This website was created to provide research into the way markets forecast events.
Your instincts are correct. Something strange is happening in the stock market. This PhD has boiled it down into two words. See his explanation here…
They do this by allowing people to bet on actual world events, such as the upcoming election, by buying “shares,” so to speak. The price of any share on PredictIt ranges from zero to $1 and represents how likely investors think an event is to happen. If the event occurs, the shares rise to $1 and investors profit. If it doesn’t, the shares are worthless, and investors lose. So, a share price of $0.50 indicates a toss-up – investors will either double their money or lose it all.
Right now, the market of who will be the 2020 presidential election winner is among the most active, with a trading volume of 96 million shares. That’s a lot of people participating. This chart shows who they think will be elected president and how that’s changed over the past 90 days:
Right now, PredictIt bettors think Biden has a 58% chance of winning, which is down from 63% in late July, but up from 55% at the end of August.
Now let’s look again at FiveThirtyEight, which feeds every poll and many other pieces of data into a model that considers thousands of possible outcomes, weighs the likelihood of each, and ultimately spits out the odds of each candidate’s chance of winning. Here’s a chart showing the results since June 1:
It has Biden somewhat more favored than PredictIt – but a Trump victory well within the range of possibility. In fact, on the eve of the last election, it had Trump 29% likely to win – and we all know what happened!
But remember, this election is not just about the president.
Another Liberal Landslide?
If Democrats win the White House, maintain control of the House, and win control of the Senate, then it will cause certain sectors to skyrocket.
So let’s look at what PredictIt has to say about this. (FiveThirtyEight hasn’t published a Congressional forecast yet.)
Bettors on PredictIt have it as almost a pure toss-up whether Democrats can seize both chambers of Congress, giving this a 48% likelihood, as you can see in the above chart over the past 90 days.
With the election less than two months away, Joe Biden is maintaining a consistent seven- or eight-point advantage in national polls, as well as leads in enough key swing states to win the electoral college. Similarly, polls of Senate races indicate that Democrats may be able to flip enough seats to take control of the upper chamber of Congress.
There is recent precedent for this. In 2008, amid the global financial crisis, Obama beat McCain by 7% in the popular vote and won the electoral college 365 to 173. Not surprisingly, Democrats picked up eight Senate seats to capture the majority with 57, and 21 seats in the House to expand their majority.
And just two years ago, in the midterm election, Democrats won control of the House by gaining 41 seats – their largest gain in 42 years.
They also won the popular vote by a margin of 9%, which is the largest margin on record for a party that previously held a minority in the House.
Now, think about what’s happened since then: the coronavirus pandemic, widespread social unrest, and the cratering of a booming economy…
Whether you view this outcome with joy or horror, you need to prepare for the possibility of a liberal landslide on November 3, in which Democrats not only win the presidency but also the House and Senate, as they did in 2008, and for similar reasons: a terrible economy and great uncertainty leading angry, frightened voters to throw out the incumbents.
Remember, this is NOT a partisan belief. I’m operating dispassionately off my analysis. It has nothing to do with which candidate I want to win.
Back in May, I predicted a “liberal landslide.” At the time, it was quite the contrarian view. And it remains so today because nobody wants to talk about it…
Democrats don’t want to talk about it because it could lead to complacency that hurts fundraising and get-out-the-vote efforts (which they believe cost them the 2016 election). Republicans don’t want to talk about it because they so strongly dread this possibility, and also worry that this narrative could become self-fulfilling.
Going into the 2016 presidential election, the polls had Hillary Clinton leading Trump by about 3 points up in the national vote, and she won by 2.2%. That wasn’t enough given where the votes came from.
But there are two things to point out here…
1. Biden currently has triple the lead that Hillary did at this exact point four years ago. That’s a material difference. It’s the difference between Trump eking out a narrow electoral college win even if he loses the popular vote, versus a Biden landslide.
2. Hillary’s lead four years ago fluctuated. She was always leading, but sometimes by as little as 2 points, sometimes as much as 8 points. The thing about Biden’s lead is that it’s been steady for a number of months.
Of course, a lot can happen in the last six weeks… But you would be wise to prepare your portfolio for the possibility of a liberal landslide.
The Biggest Winner of All
If I’m right and Biden wins and a liberal landslide comes to pass, it’s going to be “rocket fuel” for certain sectors: clean and renewable energy, health care, cannabis, and online gambling.
But I’d expect the biggest winner of all to be electric vehicles (“EVs”).
In fact, EVs have the potential to be as big of a technological disruption as the Internet was.
Of course, many investors immediately think of Tesla (TSLA) when it comes to EVs. But the company is up more than 700% over the past year. I think the juice has already been squeezed out of Tesla.
In the event of a liberal landslide, we could see $1 trillion… $2 trillion… even $3 trillion in stimulus focused specifically on green investing.
To prepare your portfolio for outsized gains in case of a liberal landslide, investors need to focus on companies that have a likelihood of being the next Tesla. Right now, Tesla has a $300 billion market cap. If you’re looking for 10 times gains, it’s a lot harder for Tesla to grow 10 times to $3 trillion than it is for a $2 billion company to grow to $20 billion… or even $200 billion.
This is a technological megatrend that will affect practically everything in America. And to help explain it in more detail, I recently put together a video presentation revealing my single favorite idea – including its name and ticker. Click here to watch it.
Whitney Tilson is the founder of Empire Financial Research and editor of its flagship newsletter, the Empire Investment Report. Prior to that, he worked at the Boston Consulting Group and later founded and ran the Kase Capital Management hedge fund, which he grew from $1 million to nearly $200 million.