The Blue Wave is here.
With Joe Biden now the president of the United States and Democrats controlling both chambers of Congress, some investors are scared.
There is a line of thinking that says such a Democratic “sweep” is bad for the market.
Is that true?
Should you prepare now for a possible market collapse?
Here’s what you need to know about building wealth in the Blue Wave …
Let me be clear right up front that this is not about politics.
You have your political opinions and I have mine, but as investors, we need to be politically agnostic.
That’s why you rarely hear me discuss politics. Buy me a few beers sometime and I may loosen up, but I never talk politics when I’m thinking about ways to make money. We should all leave our politics at the door when it comes to investing.
So to help us figure out what to do, let’s start with what we know …
History shows that a Democratic sweep isn’t bad for the market. In fact, it’s usually pretty good for the market.
What’s more, this particular sweep is quite narrow. The Senate is right down the middle at 50/50, with Vice President Kamala Harris holding the tiebreaking vote. And the Democrats hold just an 11-vote majority in the House, which is the smallest margin since 1879.
The market doesn’t like huge changes, and I think Washington remains split enough that nothing major will get done and possibly screw things up.
For proof, check out the table below that my friends at LPL Research put together. It shows what the market has done when the Democrats control the executive and legislative branches going back to 1950. You can see a lot of green in here.
The highlights are at the bottom. The average annual gain is 9.1%, which is about the historical average. The median gain (the number right in the middle) is higher than that average at 12%. And perhaps best of all, the market was higher nearly 80% of the time.
You know I’m a numbers guy. Well, these numbers tell us that a Democratic sweep isn’t reason in and of itself to cause the market to fall apart.
But how about this time?
I expect history to not just repeat itself but perhaps even rival some of those biggest annual returns on the chart.
We know the Biden administration is going to spend big time. The fiscal printing presses are going to be smoking.
Talks are already under way for another stimulus bill on the order of $1.9 trillion — and this could include a third round of direct checks to Americans of anywhere from $600 to $2,000. In addition, we know President Biden wants massive spending on both infrastructure upgrades and clean energy, probably on a similar scale of $1-$3 trillion.
This is a huge positive for the market.
After the first stimulus bill last spring, the amount of money in checking and savings accounts shot higher. The money has been flowing for a while, and a lot of it remains in cash.
It won’t stay there.
History also shows us that Americans will eventually spend this money. It will make its way into the economy for sure, and some of it will even go directly into the stock market. Either way, this is very good for stocks.
So, what’s the best way to profit?
First, you must understand that cash is NOT king. The dollar will continue to decline in value amid the massive spending, and interest rates are historically low. You’re getting practically $0 on your cash, and when you add inflation, you’re losing money.
Neither is gold. Over the past five years, SPDR Gold Shares (NYSEARCA:GLD) is up 67%, well short of the S&P 500’s 101% gain. Some gold is probably fine, but it’s no longer the best hedge against inflation. That title now belongs to cryptocurrencies.
The way to build wealth brings me to the second reason I expect the market to do well this year …
Hypergrowth trends and stocks continue to transform our world.
Longtime MoneyWire readers know that I believe the entire Roaring 2020s will be a decade for the record books. I believe what’s coming will be so big and monumental that it will reshape much of our world.
Several once-in-a-generation technologies are coming together at the same time and transforming virtually every aspect of our lives, from healthcare breakthroughs to an almost unrecognizable transportation industry to instant 5G wireless communication that will enable everything from self-driving vehicles to robotic surgery.
The pandemic didn’t stop these trends — it even accelerated most of them — and neither will any one person in the White House or party in control of Congress.
The last time we saw something similar was in the early ’90s. It was also a time of low inflation and incredible innovation.
The rollouts of cellular phone networks and powerful personal computers and the advent of software and the internet converged to unleash a tsunami of productivity. In a relatively short timeframe, our ability to communicate, transact, process data, analyze data, and manage supply chains was revolutionized.
The massive productivity increases from the new technologies of the 1990s were like a huge shot of adrenaline to the economy. And they paved the way for truly innovative companies harnessing these new technologies to hand their shareholders incredible returns. Companies like Cisco (NASDAQ:CSCO) went up 113,000%.
A very similar story is unfolding now. The convergence of innovative technologies like artificial intelligence, 5G, precision medicine, the Internet of Things, driverless cars, and the blockchain are recreating the very framework of modern society.
The impact these technologies will have on the global economy will dwarf the internet. No matter if the political wave is blue or red, smart investors in these trends will be seeing green.
On the date of publication, Matthew McCall did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. Click here to see what Matt has up his sleeve now.