Market Overview

A Flight To Safety Idea For Any Electoral Outcome

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The outcome of the upcoming presidential remains to be seen and while polls seem to indicate one scenario is increasingly, surprises are always possible. Investors can deal with that and the possibility of post-election volatility with strategies geared to be safe.

What Happened

Enter the Direxion Flight to Safety Strategy ETF (NYSE: FLYT). FLYT specializes in safety and could be relevant if a blue wave occurs.

Such a scenario, “would not sit well with investors who have lauded the current administration’s pro-market, anti-regulatory approach,” notes Direxion. Increased regulatory rhetoric directed at sectors like technology, healthcare, and financials, combined with (Joe) Biden’s economic platform would likely contribute to some negative market sentiment.”

Why It's Important

FLYT, which tracks the Solactive Flight to Safety Index, is a mixture of U.S. Treasuries, utilities stocks and gold, making it an ultimate safe-haven destination.

FLYT's gold exposure is relevant not only because the yellow metal is soaring this year, but also because bullion historically performs better when Democrats are in the White House. Additionally, the audacious spending programs that could come about if Democrats control the presidency and both houses of Congress could weaken the dollar, boosting dollar-denominated gold in the process.

“As November 3 approaches, traders and investors should keep an even head entering into the election,” said Direxion. “The results that follow, while indicative of the policy approach of the next four years, will ultimately have a limited impact on long-term volatility.”

What's Next

Obviously, FLYT offers the benefits of gold, the yield of the utilities sector and the relative safety of Treasuries – assuming a blue wave doesn't result in higher interest rates. However, the Direxion fund is relevant for another reason: The specter of a more contentious election than polls are currently indicating.

“This will likely be the case even in a contested election. Though history shows us that a contested election would cause elevated volatility in the short term, the market often looks past these results and towards other economic forces,” according to Direxion. “Looking back at the 2000 presidential election, it now seems obvious that the bursting of the dotcom bubble and 9/11 terrorist attacks had far more serious long-term implications for the market than the three-week period of presidential uncertainty.”

FLYT is up about a half a percent over the past month and while that doesn't speak post-election volatility, that could change in a hurry, putting spotlight on the Direxion ETF.

 

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Posted-In: Long Ideas News Bonds Specialty ETFs Commodities Politics Events Markets

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