With U.S. voters set to head to the polls next week, Steven Cress, VP of Quantitative Strategy at Seeking Alpha discussed the best strategy for navigating the uncertainty of an election year, saying that once the outcome is resolved, stocks with strong fundamentals will attract investor attention.

In a conversation with Lisa Benke, senior Investment Insights host at Seeking Alpha, during Seeking Alpha’s Election 2024 Virtual Event, Cress pointed out that during election years, investors tend to be defensive in their investing, allocating more money to market funds rather than equities.

However, during the year after election years, the allocation changes.

Uncertainty in the markets

“We’ve seen a great deal of uncertainty in the markets,” he said. “That was reflective of sectors like utilities (XLU) and consumer staples (XLP) performing well.”

However, “in recent weeks, we saw a rebound in technology (XLK) and consumer discretionary (XLY) stocks. Investors are returning to fundamentals and are not being influenced so much by sentiment.”

“But if we did have a disputed election, uncertainty would be reintroduced into the market,” he added. “It would be quite natural to see the market pull off, and we could see a rotation back into the utility stocks (XLU) and the consumer staples (XLP) stocks.”

“If that did happen, I would look into dividend stocks. Chances are some good companies with great fundamentals that have dividends will probably pull back and it will be a great opportunity for a little bit of extra yield.”

“Once the election outcome is resolved, fear and sentiment will not drive the market, and at that point, investors always return to fundamentals.”

“I would use any weakness as an opportunity to look at stocks with strong fundamentals.”

How investors have historically positioned their money

During election years, investors are nervous and are not investing at the same pace they do during non-election years, he said.

Going back to 1976, on average, during election years, the markets were up 7.1%, vs. non-election years at 10.5%.

From 1992 through 2023, the average net fund flow of presidential election years for equity funds was $37B, and for money market funds was $195B.

During the same period, the year after an election year, the average net fund flow was $202B for equity funds, and $85B for money market funds.

“This definitely shows you, that during presidential years, the market tends to be nervous, and people are guiding their money into money markets, [and] away from equities.”

“But when you come out of those election years, the money flows right back into equity funds.”

“This year has definitely been a defensive year, and investors have hesitated, but right now is the best time to go into equities,” he concluded. “If you have a shopping list of companies that look great and have strong fundamentals, this should be the time to be putting them in your portfolio.”

Money market funds: (SPAXX), (FZDXX), (SPRXX), (SWVXX), (SNAXX), (SCHV), (PRTXX), (TRGXX), (PJLXX), (MJLXX), (CJLXX), (VMFXX), (VMRXX), (PINXX).

For investors looking to track the elections through market instruments, here are some politically driven Republican and Democratic exchange-traded funds:

• God Bless America ETF (YALL)
• American Conservative Values ETF (ACVF)
• Point Bridge America First ETF (MAGA)
• Democratic Large Cap Core ETF (DEMZ)
• Unusual Whales Subversive Democratic ETF (NANC)
• Unusual Whales Subversive Republican ETF (KRUZ)

Readers interested in investing topics tied to the upcoming election can read coverage from Seeking Alpha's Investing Forum: Election 2024 event; please visit this page.

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