🗳️ Biden Drops Out: What’s Next for Investors?

What’s on the Menu 🍴

This weekend’s events sent investors scrambling to figure out what’s going to happen this week.

So in today’s Daily Dough, we’re gonna talk about what happened and how it could impact your wallet!

• Biden Drops Out: What’s Next for Investors? 🗳️

• What To Watch This Week 👀

• How To Diversify Through The Wealth Phases 💵

Today’s newsletter is a 5 minute read.

Biden Drops Out: What’s Next for Investors? 🗳️

Biden's exit from the 2024 presidential race has sent shockwaves through the political and financial arenas.

Announced on Sunday, July 21st, the decision is generating buzz across the internet with memes, speculation, and a flurry of financial analyses.

Here's what it means for investors:

Predicting the Drop: First off, let's give credit where it's due: the betting markets, particularly on Polymarkets, predicted Biden's drop ahead of time.

Betting on political outcomes may seem like gambling, but it often reflects sharp, collective insights into political dynamics.

Crypto and the Dems: Biden, alongside Elizabeth Warren and Gary Gensler, has been known for a tough stance on cryptocurrencies.

If the Democrats lose the presidency, we could witness a significant policy shift.

Trump, the leading Republican candidate, has shown a surprising pro-crypto stance, which could be a boon for the crypto market if he reclaims the White House.

Kamala Harris Steps Up: With Biden out, Kamala Harris's odds of becoming the Democratic nominee have soared to 80%, bolstered by endorsements from the Clintons.

The Biden campaign's $240 million war chest is conditional on Harris staying on the ticket; otherwise, most of it reverts to the Democratic Party.

This financial backing underscores the party's strategic pivot to maintain control and unity.

Market Movements: Bitcoin and other cryptocurrencies are already reacting.

Bitcoin, for instance, has popped above its 100 and 200-day moving averages, signaling a shift in momentum.

It's close to hitting all-time highs, indicating that investors are pricing in a potential Trump win, which they see as positive for the crypto economy due to his favorable stance on Bitcoin and lower corporate taxes.

Trump’s Potential Cabinet: Adding another layer of intrigue, Trump is reportedly considering BlackRock CEO Larry Fink for Treasury Secretary.

Fink's pro-Bitcoin stance could further boost the crypto market if he joins the administration.

But opinions are divided: while some celebrate Fink's potential influence, others worry about the broader implications for financial regulation and market stability.

Investor Takeaway: For investors, Biden's exit injects a new level of uncertainty and opportunity.

Crypto enthusiasts should keep an eye on the political developments and adjust their strategies accordingly.

A potential Trump win could herald a more favorable regulatory environment for cryptocurrencies, while traditional markets might react positively to his pro-business policies.

What To Watch This Week 👀

Big news dropped over the weekend that US President Biden will not run for re-election this year, which could have an affect on various assets this week.

This comes at a time when the market will have plenty of other news to digest, as the heaviest part of the Q2 earnings reporting season kicks off.

Major bell-weathers reporting this week include Tesla, Google, Visa, and Ford:

We’re also in the midst of a major crypto rally, and a major shift in the stock market out of large cap stocks and into small caps.

BTC vs IWM (small caps) vs QQQ (large cap tech) over trailing 10 days

Thankfully the macro calendar will be a little lighter, but here are some data releases worth watching:

• Germany consumer confidence (Wed)

• Germany manufacturing PMI (Wed)

• Bank of Canada rate decision (Wed)

• US durable goods orders (Thurs)

• US GDP growth rate for Q2 (Thurs)

• US personal income & spending + core PCE (Friday)

The US GDP growth estimate for Q2 is one area to watch given the Atlanta Fed’s forecast ticked up a little last week after the retail sales report:

Whether the recent surge in small cap stocks continues may depend on whether the economy can keep delivering positive growth.

Q3 guidance from companies reporting their earnings will give us further important clues into the health of the economy this week.

We’ll also be watching the IWM versus QQQ ratio very closely.

In addition, we’ll keep an eye on the following assets and sectors:

📈 Rising Recently:

• Crypto (BTC / ETH / WGMI)

• Small Caps (IWM / IJR)

• Energy (XLE / XOP)

• Regional Banks (KRE)

• Homebuilders (XHB)

• Real Estate (XLRE)

📉 Falling Recently:

• Big Tech (QQQ)

• Semiconductors (SOXX)

• Internet & Software (IGV)

• Solar & Cleantech (TAN / PBW)

How To Diversify Through
The Wealth Phases 💵

Diversify, diversify, diversify!

It’s the chant of all financial professionals and savvy investors.

But, is diversification more of a luxury that you can do once wealth is built? Or should you be focused on it at every stage?

It’s hard for a lot of people to want to diversify when they don’t have a big brokerage balance.

In fact, a lot of major wealth is built via “concentration” when you talk to the very wealthy. This entices a lot of investors to skip a well-diversified portfolio.

So, how should an investor be thinking about diversification through the multiple phases of wealth?

First, we diversify across asset class like equities, bonds, commodities, real estate, private investments and cryptocurrency. We can also diversify within some asset classes via domestic or international investments.

Then, we can also diversify across trading and investing strategies like swing or momentum based trading, stock picking, index investing and more.

Diversification has many possible layers!

Accumulation Phase:

The accumulation phase is just what it sounds like. You’re working hard to get as much money invested as you can so it can compound.

I get questions often from investors with smaller portfolio balances on how to manage it.

You’re going to want some diversification, but, a smaller portfolio will likely need to take a “concentrated diversification” approach with the right types of U.S. focused index funds like those that track the Nasdaq 100 and the S&P 500.

You’ll get diversification via hundreds of companies, however, you’ll be more “focused” with only U.S. equities.

I like the approach of building up a portfolio with “concentrated diversification”, then expanding on diversifying as your account grows. Maybe even adding in a few higher quality individual stocks.

Keep in mind, being U.S. focused, it still gives you global diversification as over 40% of revenues comes from international sources now in the S&P 500:

The larger your account grows, the more you can add in more strategy (like more targeted investments in regions of the world and more asset classes).

Preservation Phase:

This is where it’s diversification’s time to shine in your financial plan!

By the time you get to the point of preserving your wealth, you may not be able to afford big concentrated bets anymore.

Your ability to take risk may dwindle away as you get closer and closer to needing to distribute your assets.

It’s a good time to take inventory of the major assets you’re invested in and strategies you’re using. You may be plenty diversified by this point, but, I’ve come across many people who went into this phase with a very risky level of concentration.

It’s nice to think about your higher-risk positions working, but, we also have to consider how your life will be impacted if things don’t go as planned.

Diversification and the preservation phase go hand-in-hand. It’s really important.

Diversification doesn’t have to be boring in the accumulation phase, but, it SHOULD be boring in the preservation phase!

This is the beauty of the markets though, there are so many ways to build a portfolio and everyone’s risk tolerance and financial needs allow for a strategy to be built that works for YOU.

It’s important to take that first step and recognize where you are in your life, what your wealth can do for you as of now, and how you should manage it based on the risk you can take on.

It’s truly more about the risk you CAN take on over the risk you’re WILLING to take on. They are two different things!

Food For Thought 🧠

"In trading, it's not about how much you make but
rather how much you don't lose.”
- Bernard Baruch

DISCLAIMER: We are not investment advisors, and this content is for educational purposes only. We don’t offer financial, legal, or tax advice. Nothing we say is a recommendation to buy or sell any assets. Trading and investing are extremely risky, so please be careful and do your own research.