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In nine days, the final round of the French presidential election will take place between Emmanuel Macron and Marine Le Pen.
Now, the markets are clearly betting on a Macron win.
But no matter the outcome, this election could be huge for your portfolio…
And here are two ways to do just that…
Why France Matters to Your Portfolio
You might be wondering why the political developments in France should even matter to your portfolio, and the answer is simple: volatility.
In a nutshell, volatility reflects uncertainty in the markets about the change in value of a security (stocks, bonds, commodities, ETFs) and how fast or slow that change is taking place. When volatility is higher, it means the price of the security can move higher or lower pretty dramatically over a relatively short amount of time. On the flip side, when volatility is lower, it means the price of the security will remain pretty steady over a longer period of time, and any changes in price will be relatively small.
All the news surrounding the French election has already been affecting market volatility. For example, Goldman Sachs Group Inc. (NYSE: GS), Citigroup Inc. (NYSE: C), and Bank of America Corp. (NYSE: BAC), as well as other banks, jumped higher after the preliminary second-round results came in last Sunday.
We're also in the middle of second-quarter earnings season, with roughly 70% to 80% of S&P 500 companies still due to report over the next two weeks. Earnings already causes volatility to increase, so when you combine a large batch of earnings announcements with the French election results, you're looking at the potential for even more dramatic price moves within the next nine days.
The other player in this mix is the retail sector. With what seems to be an endless stream of new store closures, retail stocks have been taking quite the beating. Just look at the price volatility heading into and out of earnings on just two of the bricks-and-mortar stores that have been struggling for some time…
Lululemon Athletic Inc. (NYSE: LULU):
Michael Kors Holdings Ltd. (NYSE: KORS):
In both cases above, volatility increased going into and immediately after earnings. Typically, volatility decreases for a short time after earnings announcements, but nothing in retail has given me reason to change my mind about the continued challenge retail stocks will have going forward.
Of course, there is one retailer that isn't suffering: Amazon.com Inc. (Nasdaq: AMZN). This should come as no surprise to you, as this guy's pretty much a leading reason why the old bricks-and-mortar store is dying out. Right now, the stock is trading near all-time highs, with earnings coming out April 27.
Now, AMZN has climbed higher regardless of how good earnings are.
However, the same can't be said for many, many others. And the volatility we're sure to see after the French election could only make things worse for these stocks – and your portfolio.
But There …
About the Author
Tom Gentile, options trading specialist for Money Map Press, is widely known as America's No. 1 Pattern Trader thanks to his nearly 30 years of experience spotting lucrative patterns in options trading. Tom has taught over 300,000 traders his option trading secrets in a variety of settings, including seminars and workshops. He's also a bestselling author of eight books and training courses.