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Dear Red Alert Reader,
As I write this on midday Thursday, we've still got no definitive result from the Nov. 3 presidential election.
As the count continues in six battleground states, the Biden-Harris campaign appears at this moment to have a "wider path" to 270 electoral college votes than does the incumbent Trump-Pence ticket.
Interestingly, the presidential betting markets – yes, betting markets – on Wednesday favored a Biden win, 79% to 28%, but the fact of the matter is it's still anyone's game.
And the markets are loving it.
Now, weakness might return with a vengeance in the event we get a lengthy contest of the result (in which case, you know what to do), but as I said, we don't yet have a result to contest, and stocks are actually running much higher.
But they're not necessarily rallying for reasons you might think.
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I appeared on FOX Business Network's "Varney & Co.," before the markets opened Thursday to tell host Stuart Varney exactly why stocks were going gangbusters with so much up in the air, and I named the two stocks I think will be truly outstanding performers in this environment.
Today, I'm going to share those recommendations with everyone here…
Sometimes Conventional Wisdom Happens to Be Right
There's an old Wall Street adage: "Markets love a divided government."
What that means is markets favor when one party controls the executive branch and the opposition controls the legislative. The thinking there is that the split will provide a natural check against any policy extremes, particularly regulation and taxation, that could imperil the business climate.
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During this most recent election, Wall Street bought into the popular media narrative of a "Blue Wave" that would see Democrats take the presidency and both houses of Congress, but, as we know now, what was predicted to be a walkover has turned out to be nothing of the sort.
As it stands now, Democrats are likely, though not guaranteed, to gain control of the White House and keep their House majority, while the Senate stays in Republican hands. Wall Street has quickly pivoted to see the business upside in this arrangement; with a Republican Senate, tax increases will be that much more difficult to enact, as will taxing capital gains as income.
What's more, the regulatory environment – which I'll talk more about in a second – is likely to remain favorable, too.
And of course, Wall Street is also looking forward to some progress on pandemic stimulus and infrastructure, both of which would act as potent fuel for big rallies.
The high likelihood of continuing divided government has led to sectors like technology – which probably would have been firmly in a Democratic legislature's crosshairs – going off like a shot.
Buy These Two Stocks on the Way Up
While I was on Stuart Varney's set during Thursday's pre-market, Stuart put five familiar-looking charts up on his screen… Apple Inc. (NASDAQ: AAPL), Amazon.com Inc. (NASDAQ: AMZN), Facebook Inc. (NASDAQ: FB), Alphabet Inc. (NASDAQ: GOOGL), and Microsoft Corp. (NASDAQ: MSFT).
Nothing unusual about seeing those companies grouped together; lots of investors start the trading day looking at those stocks.
No, what was remarkable were the gains they were experiencing, some as much as 3%, and it was just 9 a.m. The markets hadn't even opened yet!
These companies, taken together, represent about 20% of the combined value of the New York Stock Exchange and the Nasdaq by market cap – some $7.3 trillion.
In fact, that's about the size of the entire American economy back in the mid-1990s; it's bigger by far than Japan's economy today.
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Those stocks extended their run throughout the trading day Thursday.
Here, too, investors can bank on the bottom-line benefits of a divided government.
Now, it's very likely – maybe even inevitable – we'll see the kinds of performative hearings we've seen before where Big Tech CEOs are "called on the carpet" and grilled (or praised) by hostile (or fawning) Representatives and Senators about their business practices or the societal implications of their products. That's virtually a given, and even those can boost or weigh down stocks' performance.
The real upside is in what's not likely to happen to these companies: strong or even onerous anti-trust action. As I said, these companies have been the subject of anti-trust furor before, in some cases going back decades, in both the United States and European Union.
Microsoft is my absolute favorite of these stocks, simply because it's put its anti-trust woes behind it; it's not on Justice Department radar screens in any way, shape, or form, and it hasn't been for years now.
Not only that, but its revenue is up 12.4% year over year – mixed into that is a 30% YoY increase in Xbox gaming revenue and 48% YoY growth in its Azure "Cloud" business. I won't even get into the extreme gains that can come from shrewd moves in the Cloud – that's for another time.
Google parent Alphabet is the No. 2 draft pick of this group. Now, it's true it's still very much under anti-trust scrutiny, but the fact of the matter is we've all seen the government's case for going forward. It's 500 pages long! Any worries or fears over the case's impact on Google have been baked in. It's another extremely strong Cloud presence, having grown that revenue by an impressive 30%.
My recommendation is to buy these stocks at market right now – even if they are packing on 2% per day, have no qualms about buying on the way up. The high likelihood of continuing divided government means these prices will be a memory soon.
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