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Why the Factors Are Aligning for a Big Market Rally
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Back in 2000, American wrestler Rulon Gardner faced one of the most feared athletes in Olympic history.
His opponent was Aleksandr Karelin, a Russian heavyweight who had won three Olympic gold medals and hadn’t lost an international match in 13 years.
Gardner was a dairy farmer’s son from Wyoming.
Not surprisingly, he was a massive underdog. But he wasn’t going down without a fight.
For much of the match, the two heavyweights were locked in a clinch, neither able to gain an advantage.
Finally, Karelin broke his grip.
That single mistake cost him the match. Gardner won 1-0, pulling off one of the greatest upsets in Olympic history.
Folks, that’s a pretty good picture of what we’re about to see in Washington.
With the midterm elections now behind us, Democrats have taken control of Congress, setting up a showdown with President Trump.
Both parties will be fighting for control. Both will be determined to get their way. But with power divided, neither side will be able to push through its agenda without the other getting in the way.
In other words, we are headed for a period of political gridlock.
And you know what? I think that’s great news for Wall Street.
You see, divided government has historically created some interesting opportunities for investors. And with November already one of the strongest months of the year for stocks, I believe we could be setting up for a powerful rally that carries into 2027.
But there’s a catch.
Even if the broader market takes off, that doesn’t mean every stock will come along for the ride.
So, let’s look at why the post-midterm period has historically been so favorable for investors, what’s fueling my optimism right now… and how you can position yourself to take advantage of the opportunities I see ahead.
I’ll also share details about a special event I’m hosting, where I’ll reveal a new way to put my strongest stock recommendations to work for you as we head into 2027.
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Why Gridlock Could Be Good for Stocks
If you think political gridlock is bad news for investors, consider what happened in 1994.
That November, Republicans swept into power in Congress, taking control of both the House and Senate for the first time in 40 years.
President Bill Clinton suddenly found himself facing an emboldened Republican opposition led by Newt Gingrich. Political pundits were bracing for bitter partisan fights and an uncertain future for President Clinton’s economic agenda.
And Wall Street had plenty of worries of its own.
In fact, on November 7, 1994, just one day before the election, the Los Angeles Times published an article with an ominous headline:
“One Last Gasp for the Bull Market?”
The article raised the possibility that stocks could enjoy one final rally before slipping into a bear market.
Well, that certainly didn’t happen.
In 1995, the S&P 500 surged more than 34%. And that was just the beginning of a powerful technology-led bull market.
The internet was just beginning to transform the economy, and Netscape’s blockbuster 1995 IPO helped launch the dot-com boom. And all that innovation continued despite the political battles in Washington.
I believe we’re going to see a similar boom – thanks to artificial intelligence.
AI is transforming the economy much like the internet did three decades ago. Companies are pouring hundreds of billions into data centers, computer chips, and power infrastructure.
Now, I realize some investors are worried that Democrats could throw up roadblocks to the AI boom, particularly when it comes to building new data centers.
And I wouldn’t be surprised if we see some reforms as politicians look to protect consumers from higher electricity bills. That could slow construction in some areas or shift new projects to other states.
But, folks, this train has already left the station. The demand for AI computing power is enormous, and companies have years of orders in their backlogs. Plus, data centers bring jobs and tax revenue to the communities where they’re built. That’s a powerful incentive for lawmakers on both sides of the aisle to keep these projects moving.
There may be a few bumps along the way, but I don’t see political gridlock derailing the AI boom.
Why the Stars Are Aligning for a Year-End Rally
Of course, there are other reasons to be optimistic – specifically seasonality and earnings.
Since 1942, the S&P 500 has risen between November of a midterm election year and the following June 21 out of 21 times, with an average gain of about 16%.
We’re also entering what has historically been the strongest six-month stretch of the year for stocks.
According to the Stock Trader’s Almanac, since 1945, the S&P 500 has gained an average of about 7% between November and April, compared with about 2% between May and October.
Now, history doesn’t guarantee that we’ll see the same results this time around. We still have challenges to navigate, including inflation and interest rates.
But when favorable seasonal trends line up with stunning corporate earnings like we’re seeing right now, that’s when I really start to get excited.
According to the latest data from FactSet, the S&P 500 is on track for 30.2% earnings growth in the third quarter, with 82% of companies reporting so far topping analysts’ earnings estimates.
Even better, all 11 sectors are reporting year-over-year earnings growth, led by energy, technology and materials.
And the outlook remains strong.
Analysts are forecasting another 28.4% jump in S&P 500 earnings in the fourth quarter. In fact, they’ve been raising their estimates when they would normally be cutting them.
Folks, that’s the kind of earnings momentum I love to see.
Of course, that doesn’t mean every stock is going to be a winner. As we’ve seen in the days following the election, Wall Street is still sorting out which companies deserve investors’ money.
And that’s where being selective becomes so important.
How to Position Yourself for a Big 2027
I know the market has been confusing since the election. Some stocks with weaker fundamentals have enjoyed a nice bounce, while others with spectacular earnings have been hit by profit-taking.
Simply put, we’re in the middle of another market rotation. Much of the initial post-election rally was driven by short covering, while some of the strongest AI stocks were left behind.
But I’ve seen this movie before. Back in July, some of my best AI stocks got hammered during the first two weeks of the month. Then they came roaring back, and we ended up finishing July in positive territory.
Wall Street has a habit of reacting first and thinking later. Eventually, though, earnings and fundamentals tend to win out.
Of course, different sectors can take turns leading the market. For example, while AI stocks have been hit by profit-taking, energy stocks have benefited from tight diesel supplies and strong refining margins.
The key is to recognize what’s working and be ready to adjust when leadership changes.
As I like to say, bad stocks bounce like rocks, but good stocks bounce like fresh tennis balls. And as we head into 2027, I think knowing the difference will be more important than ever.
You see, the market has become increasingly narrow. The days when you could buy almost any AI stock and watch it soar are fading. Investors are becoming more selective, and with a new Congress potentially adding more uncertainty to the AI buildout, the list of winners could get even smaller.
But, folks, that’s exactly the kind of market where my Stock Grader system shines.
I’ve spent nearly five decades studying what separates the strongest stocks from the rest. And when Wall Street starts picking winners and losers more carefully, I believe that research becomes even more valuable.
That’s why I’ve been working on something special to help investors navigate the market ahead.
I’m preparing to reveal where I believe the next big opportunities will emerge, which stocks are best positioned to benefit, and how I’m adapting my strategy as market leadership changes.
And on Thursday, November 12, at 2 p.m. Eastern, I’m hosting a special online event to show you exactly how it works.
During the presentation, I’ll reveal two special stock recommendations: one I believe you should consider buying and another I think you should avoid.
If you register for my special event you’ll gain access to exclusive content I’ve prepared for the event. (Click here to reserve your spot now.)
You’ll also get a chance to test-drive my proprietary Stock Grader system.
Normally, this kind of access is reserved for my paid subscribers. But for this event, you’ll be able to enter stock symbols yourself and see how my system grades them.
You can reserve your free spot for Thursday, November 12, at 2 p.m. Eastern by clicking here.
Sincerely,
Louis Navellier
Senior Investment Analyst, InvestorPlace
P.S. Louis believes the stage is set for a 2027 where stock selection becomes increasingly important. That’s why he’s developed a new way to use his proprietary Stock Grader system to help investors identify promising opportunities and avoid potential losers. At his free November 12 presentation, he’ll reveal one stock to buy and another to avoid. Register here to reserve your spot and get immediate access to test-drive Stock Grader yourself.
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