When it comes to trading, I prefer to react, rather than anticipate. I don't make big, grand predictions about macro events like the economy or an election. I find it best to embrace the view that I don't know what will happen, but to stay ready to react aggressively when conditions shift.
I actively try to avoid having an opinion about who will win the election, although I certainly have a preference. I just find it counterproductive to try to guess.
We will see some increased volatility and sector shifts no matter who ends up winning, and I'll be ready to trade those opportunities. But there are two bigger issues that I believe are more important in the short term. The first is whether there will be a clear winner on election day. The market will not react well to uncertainty, especially if drags out for weeks. When the Bush-Gore election went to the Supreme Court, we had a couple of weeks of miserable trading, while we waited for a resolution.
The other big issue will be control of the Senate. The market tends to favor gridlock, which makes it difficult for either party to implement an aggressive policy, especially when it comes to taxes and the economy. The market will almost always favor the status quo, because it is more certain than anything else.
If the Senate remains in Republican hands, then we will have gridlock no matter who wins the Presidential election, because the House is almost certain to stay Democratic. We are seeing a good example of gridlock in Washington right now over the stimulus policy. It is nearly impossible to reach a bipartisan agreement on some things and the market is usually happy with this.
My main concern right now is that there is increased nervousness about both an unclear election and a "Blue Wave." I expect the market to stay pinned down until there is more clarity. I plan to do some small buying in stocks I favor fundamentally that don't have any direct connection to election results and will continue to look for good setups. I anticipate having shorter time frames for the next couple of weeks.
I suspect that the market reaction after the election is finished will be quite different than what many people are predicting right now. All you have to do is think back to 2016, when a few folks made a fortune on election night when futures dropped sharply when it became clear that Trump would win, but then trended higher for weeks afterward.
We don't know what the market will do after the election is over, but we don't need to. We just need to be ready to adapt quickly to changing conditions.