How to navigate pre-election market madness — and how to trade a K-shaped recovery

How to navigate pre-election market madness — and how to trade a K-shaped recovery
Parnassus Investments

Hello everyone! Welcome to this weekly roundup of Investing stories from deputy editor Joe Ciolli. Please subscribe here to get this newsletter in your inbox every week.

Dear Readers,
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Judging by yesterday's drastic sell-off, pre-election market jitters are in full effect. And as investors contend with record-setting COVID-19 infections and uncertainty around economic stimulus, it's clear this is not the usual run-up to an election.

With so many cross-currents to monitor, it can be confusing to know how to invest. For instance, a trade that capitalizes on coronavirus vaccine progress may be outdone by a specific election scenario. There are markedly few clear-cut outcomes.

The Investing team at Business Insider realizes this, and has been busy identifying investing recommendations set to thrive anyway. One such example is recent guidance provided by David Bianco of DWS Group, who has figured out how to flip two election-linked risks into profit opportunities.
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For those expecting a Democratic sweep — which is currently the odds-on outcome — a fund manager at a $468 billion firm has formulated seven portfolio moves to make right now in anticipation. Columbia Threadneedle has been hard at work analyzing 650 stocks over a nine-month period in order to fine-tune its strategy. That's resulted in a handful of trades to make in anticipation for a Joe Biden victory, as well as some downside hedges in case an unexpected outcome stirs up volatility.
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And JPMorgan has compiled five core investing tips for handling the election, while also identifying the sectors poised to benefit from every single possible outcome.

For more, see below Business Insider's best Investing stories of the week, which include a wide array of additional recommendations, strategies, and tips for navigating uncertainty.

Thanks for reading!
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-- Joe

How to invest in a 'K-shaped' economic recovery

Todd Ahlsten has returned more than 540% to investors since he began managing the Parnassus Core Equity Fund in 2001. His older picks and successful investments during the coronavirus crash have helped him double the return of the typical fund in the category this year.
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With those successes behind him, Ahlsten explained how he's looking for winners in the sectors that are being decimated by the pandemic recession.

Read the full story here:

A fund manager who's doubling up the competition in 2020 tells us his strategy for investing in the 'K-shaped' economic recovery — and details the only 2 stocks he added as the market recovery took off

The Fed's role in creating a historically large disconnect

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Sven Henrich, founder and lead market strategist at NorthmanTrader, is widely followed for his technical and macro analysis of global equities.
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A longstanding Fed critic, he believes that the central bank has overstepped its original mandate and has artificially kept alive unproductive and highly indebted companies by pumping liquidity into the financial system.

He explains why the famous "Warren Buffett indicator" is signaling a frothy market and shares two key indicators to watch. Read the full story here:
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'The largest asset bubble and disconnect from the economy ever': A widely followed market strategist outlines the negative side effects of Fed intervention — and shares the 2 signals he's using to monitor the situation

8 trading rules from market wizard Jim Rogers

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Jim Rogers — a legendary trader profiled in Jack Schwager's classic "Market Wizards" series and the chairman of Rogers Holdings — started trading in 1968 with just $600. Rogers misinterpreted his initial success in markets for skill. Shortly thereafter, he experienced a big loss.

Today Rogers' net worth is estimated around $300 million. He shared with Schwager eight trading rules that help drive his immense success.
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Read the full story here:

Market wizard Jim Rogers started trading with $600 and now has a reported net worth of $300 million. He shares the 8 trading rules that ensured his success.

Stock pick central

Seeking experts who are willing to name names? Look no further:

Chart of the week

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The chart below shows a sharp decline in open interest pegged to stocks linked to the prospects of a successful COVID-19 vaccine. This implies liquidation of positions previously held by bullish investors.

To Goldman Sachs derivatives strategist Vishal Vivek, the resulting underperformance of vaccine stocks makes them a bargain right now. He highlights 13 such stocks currently being underappreciated by the market — meaning shrewd investors should go long.

Click here for more details

Quote of the week

"If you're going to identify opportunity in companies that are off, you've got to have number one, a capital structure to get to the other side. And point number two is, when demand comes back, you have to be a winner. You have to not just merely survive, but survive to win."
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-- Todd Ahlsten, manager of the top-performing Parnassus Core Equity Fund, breaking down what he looks for when hunting stock-market bargains

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