Wall Street's Dirty Little Secret About Election Years

Dear Reader,

I've been asked a dozen times over the past two weeks how the stock market performs during midterm election season.

So I finally sat down and did the research.

And you know something funny about getting older — you forget things you used to know.

That is genuinely crazy to experience.

Anyway, here are the facts.

What History Actually Shows

Since 1990, the S&P 500 has dropped at least 7% from August to October in every midterm year except one — 2006.

Every single midterm year.

Except one.

That is a pretty consistent pattern.

And right now, the institutional selling is already underway.

Goldman Sachs reported last week that hedge funds, asset managers, and other institutional investors sold $21.6 billion of Nasdaq futures in a single week.

The largest weekly sale on record.

One Thing Worth Understanding

Now, 72% of that selling was short sales — not outright stock sales.

And I want to explain something here that most investors don't know, because it changes how you interpret this data.

Take SpaceX as an example.

Everyone is watching the lock-up period, when insiders can start selling.

But here's how it actually works.

Investment banks will short the stock on behalf of employees who want to sell before the lock-up expires.

An employee says: "I own 100,000 shares and I want to lock in this price."

The bank shorts those shares at the current price — say $200.

When the lock-up expires and the employee delivers the shares, the bank covers its short.

The employee effectively sold at $200 even though the stock might be at $130 by then.

So a lot of what looks like institutional selling right now is actually pre-positioning for coming lock-up expirations.

The data is a little distorted.

But the bigger point stands.

Tech stocks are being sold.

And the midterm pattern is real.

What This Means for You

The way I'm thinking about this personally is simple.

First, I'm looking at my weaker positions.

The stocks I'm not that happy with.

The ones that have run high without the earnings to back it up.

I'm going to trim those.

Second, it's a reminder to only take good swings.

You don't have to chase everything.

Not investing is an investment decision too.

It just happens to be a "no".

The best investors I've ever known say no 99% of the time.

They wait for the meatball.

They don't swing at every pitch.

Now — and this is the important part — none of this means the AI revolution is over.

It's not.

We are in the middle of a genuine industrial revolution that is creating enormous wealth.

That story is very real and it is continuing.

I've been digging into it a lot lately.

But even in the middle of a revolution, markets have cycles.

Midterms have historically produced a 7% to 10% pullback.

Rising interest rates are adding additional pressure right now.

So if the market does crack, that's not a disaster.

That's an opportunity.

Trim the weak positions now.

Keep the cash ready.

And when things get cheap, pounce.

That is the playbook.

And for my favorite AI stocks that should be added to your buylist right now, go here>>>

Have a wonderful day.

I'll see you tomorrow.

"The Buck Stops Here,"