This Postelection Darling Could Jump 33%
Two weeks ago, the presidential votes were tallied. Half the country celebrated. The other half mourned.
If you're a politically engaged American, you probably fell squarely into one of those two camps. But either way, as an investor, you've got to figure out what to do next.
I make it a point to never wade into politics in DailyWealth. That isn't because I don't have thoughts or opinions. It's because I've studied enough to know one fundamental truth...
Politics and investing don't mix.
You shouldn't put money to work just because you like the person in charge. And you certainly shouldn't pull money out of the markets just because you dislike the person in charge.
Instead, we need to focus on what's happening... how it compares with history... and what it means for the future.
Plenty of big market moves happened after the election. That included a massive rally in small-cap stocks. And according to history, this means we could see a 33% gain over the next year...
Let me explain...
Maybe it was Donald Trump's victory... or perhaps it was just the end of the uncertainty. Either way, markets soared the day after the election.
The S&P 500 Index was up 2.5% on November 6. The Nasdaq Composite Index jumped 3%. And the Dow Jones Industrial Average rallied 3.6%.
None of that compared with the move we saw in small-cap stocks, though. The Russell 2000 Index jumped 5.8%... Plus, it rallied 1.9% on Election Day.
That pushed the benchmark index for small caps near an all-time high in the days following the election. Take a look...
Small caps absolutely soared during the election rally. They jumped 7.8% in just two days... one of their largest two-day rallies ever.
We shouldn't ignore this huge move, either. According to history, it means much larger gains could be on the way.
To see it, I looked at every two-day gain of 7.8% or more since the data begins in 1979. These kinds of rallies tend to happen in clusters. So I only counted instances that were at least 50 trading days apart.
Those setups have only happened six other times in nearly a half-century. And they were darn good times to buy. Take a look...
Small-cap stocks have been a fantastic long-term investment. They've led to 9.2% annual gains since 1979. But you can do even better if you buy after setups like we saw recently...
Similar instances led to 12.6% gains in six months and 32.6% gains over the following year. Those are massive overall returns – and they crushed the typical results. Plus, small caps were higher a year later in five out of six occurrences... So these setups had an excellent win rate, too.
Again, it's crucial to remember that politics and investing don't mix. Regardless of how you feel, the market is happy to be past the election. And small-cap stocks did especially well.
According to history, though, the good times in small caps are just beginning... And we could see massive 33% gains over the next year.
Good investing,
Brett Eversole
Further Reading
"It pays to be an optimist," Brett writes. "That's true in life – and it's true in the stock market." There are plenty of reasons to question today's bull market. But instead of acting out of fear, you should assume the best – and have a system in place in case things go wrong... Read more here.
"When stocks are moving higher, they tend to keep moving higher," Brett writes. We've had an incredible year so far... with one of the best first 10 months in stock market history. And this strong start makes more gains all but certain... Learn more here.