Investors just remembered an election can be contested. Strategists are calling it an underappreciated tail risk. Tail risk is Latin for "we did not think about it."
The scenario: Donald Trump disputes the midterm results. Markets wobble. Your portfolio, a collection of tickers you picked because the logo looked friendly, wobbles harder.
Look at the chart. Not the news. The chart.
In January 2021, the Capitol was stormed while Congress certified the 2020 result. The S&P 500 closed that week higher. Stocks shrugged at the most dramatic certification in modern history. Your fear of a lawsuit in Ohio is adorable by comparison.
Analysts now warn of volatility. Volatility is when the line goes up and down. The line has always done that. That is the entire product.
Retail traders will respond the way they always do. They will read a headline, panic, and sell at the bottom. Then they will post a screenshot of the loss with a rocket emoji, because grief needs a format.
A contested midterm means weeks of recounts, court filings, and cable panels featuring men with laminated credibility. None of this changes a single support level. Support does not care who certified what.
Wall Street calls this "headline risk." I call it Tuesday.
Some of you will hedge. You will buy puts from an app that gamified the purchase with confetti. The confetti will be the only thing that ends the month in the green.
Your portfolio is not threatened by the election. It is threatened by you.
Photo by Leo_Visions on Unsplash
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