Volatility is a normal part of investing, especially during a mid-term election year.

 

On average, the stock market pulls back 19% during a mid-term election year. However, the rallies off the lows are even stronger, rebounding 31% a year later.

 

Given the strong underlying fundamentals of the economy and the stock market, we view the volatility as an opportunity for investors to purchase at discounted values… in other words, “buy the dip”.

 

Lizzie discussed market volatility, earnings seasons, and more with Charles Payne on Fox’s Making Money yesterday. 👇

 

Transcript:

All right, folks, now my next guest says to expect volatility. That’s the key word of the day. She says it’s going to happen throughout the year and particularly into the midterms. So, let’s bring in now Evans May Wealth Managing Partner, Elizabeth Evans.

And Elizabeth, you know, I was saying at the top of this, I think we’ve become spoiled. Right? We’re going to put up the VIX here in a moment. Golly, I mean this thing has been trending lower since the tariff tantrums. And yeah, we get these occasional spikes. And next thing you know, they pull back quickly.

So, I mean, I guess maybe because we’re so spoiled that just even the slightest amount of volatility seems to throw people off. Should it?

No, it shouldn’t. I think, you know, today we if you look at last year and the reason that the dips are, that the VIX spikes and then we’re back to normal, are that the underlying fundamentals are good. I do think this year being in a midterm election, we know that this phase of the presidential cycle tends to be the most volatile.

And this year has been no exception. We’ve seen the VIX hit 20 or higher six times in a six-week period. So, if we look back on average during a midterm election year, the market pulls back 19%. If you then look at where the market is a year later the market has rebounds. The rebounds are significant, 31% higher.

So, to the extent we do see double digit pullback and a lot of volatility, investors should use that to their advantage and buy the dip.

Earnings season almost over. How much do you think the results argue or augur rather for this rally to continue?

Earnings have been really good. So as of last Friday, we’re seeing earnings growth of 13%.

So, if you compare that to the five-year average of 7.7%, earnings growth has been really strong. Now the concern is if we look at Q1 and Q2 of ‘26, the bar is set much higher. So, for Q1 the expectation is earnings growth of 11.3%. Q2 14.9%. So, the bar is higher, but so far earnings have held in there.

Software stock’s getting hit. You know, I want to know in your mind if it’s overdone because I know you like looking for opportunity. And have you begun to sift through the ashes to find the best names?

Oh, Charles, software has been brutal. So, you know, right now the market is really digesting a couple things. First of all, there’s concern around AI cap ex infrastructure spend, which is now expected to be $700 billion in 2026.

So, I think Jensen Huang’s interview last Friday calmed some of the fears in the market. But the software trade, will AI replace software or will it rather expand profitability and productivity? We certainly think it’s the latter, but there will be some smaller, unprofitable names in software that will ultimately be replaced by AI. I think that some high-quality names like ServiceNow and CRM, they’ve been beaten up so much.

The problem is, if you look at short interest, it doesn’t appear that we’ve seen the bottom. So, I do think it’s overdone. You don’t want to catch a falling knife, but gosh, I have to believe we’re going to start to see the bottom here soon.

 

All right, well, I can’t wait till you give us some, some solid picks there. I’ve only got a minute to go through three of your picks so quickly.

Vistra (VST), I love the name too, but it is, it can be volatile.

Yes, absolutely. So, this is, we’ve had a, you know, sell off in power and AI. So, this is a way for investors to play AI demand for electricity without paying the AI tech multiples.

And if you look at Vistra, Vistra just penned a deal with Meta. Just on Friday, Goldman raised their outlook to a buy. So, I do think it will be volatile. But they have 6.4GW of nuclear capacity and only half that capacity is spoken for. So, I do think there’s continued upside.

I know, Charles, you love companies that generate a lot of free cash flow. $4.3 billion expected in free cash flow this year.

 

Less than 30s.

I’m going to let the audience know you like gold (GLD). But I’ve got to ask, you like DraftKings, and I’m concerned they’ve always had to spend a lot of money on customer acquisition, and now you’ve got everyone else getting into the predictions market.

Yeah, that’s a great question.

So, DraftKings is a riskier pick. They report tomorrow after the close. But if you look at gaming. So, right now there’s somewhat of a horse race between FanDuel and DraftKings. They have just roughly 30% of the net revenue gaming share in the U.S. So, this is a company, again, that’s been brutally beaten up.

It turned profitable in 2024. We’re expecting EBITDA of $1 billion by the end of 2026. So, that gives them some room in their balance sheet to play offense.

 

All right. I’ll be thinking about you in the earnings print. Elizabeth, thank you. Talk to you again soon.

Thank you, Charles.