A close U.S. presidential race is prompting investors to brace for potential volatility in the stock market, reflecting fears of an unclear or contested election outcome. With less than a month until Election Day, polls indicate that Democratic candidate Kamala Harris and Republican nominee Donald Trump are neck and neck. A recent Reuters/Ipsos poll shows Harris with a slight edge at 46% compared to Trump’s 43%, highlighting a tight race that has intensified in recent weeks.
The specter of a contested election looms large, particularly given Trump’s history of disputing election results, as seen in his attempts to overturn the outcome of the 2020 presidential election against Joe Biden. This possibility raises concerns about market stability if the election results are close and contentious. Additionally, control of Congress is at stake, with numerous races anticipated to be tightly contested, further exacerbating uncertainty in the markets.
“This is going to be a very close election. It just stands to reason that the likelihood of some type of dispute occurring is higher than it is on average,” stated Walter Todd, chief investment officer at Greenwood Capital. He cautioned that if the results are uncertain for an extended period, investors may see a sell-off in stocks. “Markets do not like uncertainty, and they certainly would not like the fact that we don't know who the president of the United States is a day or two after the election,” Todd added.
Despite the political uncertainty, current enthusiasm for stocks remains robust, bolstered by strong economic growth in the U.S. The S&P 500 index has seen impressive gains this year, rising 21% and positioning itself for a second consecutive year of double-digit growth. This resilience indicates that investors remain optimistic about the broader economic picture, even as they keep an eye on the election.
However, the impending election is influencing market behavior. The Cboe Volatility Index (VIX), which gauges options demand for protection against stock market fluctuations, has increased approximately six points from its lows in September, now standing at 20.9. This level is commonly associated with moderate to high expectations of market turbulence, suggesting that investors are preparing for possible swings in response to the election outcome.
Additionally, options markets indicate heightened concern about tail risk, a potential market shock stemming from an unlikely yet impactful event. The Nations TailDex Index, which measures this type of risk, has recently reached its highest level in a month, further underscoring investor anxiety surrounding the election.
Michael Purves, CEO of Tallbacken Capital Advisors, believes the focus should not solely be on the election day itself but rather on the weeks that follow. “It's really not so much about the outcome as it is about the potential risk of the morning after, of the election not being considered valid by a large part of the population,” he explained. “That to me is a real risk … a litigated outcome, where the stock market probably sells off.”
Historically, instances of contested elections have been rare, but when they do occur, they can have significant repercussions. For example, in the wake of the 2000 election between George W. Bush and Al Gore, the S&P 500 experienced sharp declines as the outcome remained uncertain for over a month due to a dispute regarding results in Florida. The index fell 5% from election day until Gore conceded, weighed down by concerns over the economy and technology stocks.
Given this historical context, investors may feel less secure this time, especially if either party raises significant challenges to a close election outcome. Trump's allies have already hinted at contesting a defeat, voicing concerns about alleged voter fraud despite evidence showing such claims are largely unfounded.
Market volatility associated with a contested election could hinder what is generally a strong period for equities in election years. Traditionally, the S&P 500 has gained an average of 3.3% during the last two months of presidential election years since 1952, rising 78% of the time, according to data from Keith Lerner, co-chief investment officer at Truist Advisory Services.
Given the potential for volatility, Purves advises investors to protect their portfolios by utilizing put contracts, which can increase in value when stock prices fall. Kurt Reiman, head of fixed income Americas and co-lead of ElectionWatch at UBS Wealth Management, also emphasizes the importance of risk management. While he maintains a positive outlook on stocks, he suggests investors consider more stable investments, such as utility stocks and gold, as buffers against the uncertain political landscape.
Stephanie Aliaga, a global market strategist at JPMorgan Asset Management, believes that while the election may cause short-term volatility, any fluctuations are likely to dissipate once the results are finalized. “Elections create uncertainty, but election results ultimately diminish and reduce that uncertainty,” she stated. “At the end of the day, you do end up with this almost post-election boost or rally because the uncertainty is cleared.”
As the election date approaches, the combination of a tight race and concerns over a potential contested outcome means that investors are closely monitoring political developments while trying to balance their portfolios against market risks. The hope is that, regardless of the election’s outcome, the market will stabilize in the aftermath, allowing investors to regain confidence as the political landscape becomes clearer.
In conclusion, the upcoming presidential election is shaping the outlook for the stock market, as investors grapple with the potential for uncertainty and volatility. With both sides in a virtual dead heat and a history of contested results, the implications for the financial markets are significant. Investors remain cautious but optimistic, navigating the complex interplay between political events and economic performance.
(Source:www.reuters.com)
The specter of a contested election looms large, particularly given Trump’s history of disputing election results, as seen in his attempts to overturn the outcome of the 2020 presidential election against Joe Biden. This possibility raises concerns about market stability if the election results are close and contentious. Additionally, control of Congress is at stake, with numerous races anticipated to be tightly contested, further exacerbating uncertainty in the markets.
“This is going to be a very close election. It just stands to reason that the likelihood of some type of dispute occurring is higher than it is on average,” stated Walter Todd, chief investment officer at Greenwood Capital. He cautioned that if the results are uncertain for an extended period, investors may see a sell-off in stocks. “Markets do not like uncertainty, and they certainly would not like the fact that we don't know who the president of the United States is a day or two after the election,” Todd added.
Despite the political uncertainty, current enthusiasm for stocks remains robust, bolstered by strong economic growth in the U.S. The S&P 500 index has seen impressive gains this year, rising 21% and positioning itself for a second consecutive year of double-digit growth. This resilience indicates that investors remain optimistic about the broader economic picture, even as they keep an eye on the election.
However, the impending election is influencing market behavior. The Cboe Volatility Index (VIX), which gauges options demand for protection against stock market fluctuations, has increased approximately six points from its lows in September, now standing at 20.9. This level is commonly associated with moderate to high expectations of market turbulence, suggesting that investors are preparing for possible swings in response to the election outcome.
Additionally, options markets indicate heightened concern about tail risk, a potential market shock stemming from an unlikely yet impactful event. The Nations TailDex Index, which measures this type of risk, has recently reached its highest level in a month, further underscoring investor anxiety surrounding the election.
Michael Purves, CEO of Tallbacken Capital Advisors, believes the focus should not solely be on the election day itself but rather on the weeks that follow. “It's really not so much about the outcome as it is about the potential risk of the morning after, of the election not being considered valid by a large part of the population,” he explained. “That to me is a real risk … a litigated outcome, where the stock market probably sells off.”
Historically, instances of contested elections have been rare, but when they do occur, they can have significant repercussions. For example, in the wake of the 2000 election between George W. Bush and Al Gore, the S&P 500 experienced sharp declines as the outcome remained uncertain for over a month due to a dispute regarding results in Florida. The index fell 5% from election day until Gore conceded, weighed down by concerns over the economy and technology stocks.
Given this historical context, investors may feel less secure this time, especially if either party raises significant challenges to a close election outcome. Trump's allies have already hinted at contesting a defeat, voicing concerns about alleged voter fraud despite evidence showing such claims are largely unfounded.
Market volatility associated with a contested election could hinder what is generally a strong period for equities in election years. Traditionally, the S&P 500 has gained an average of 3.3% during the last two months of presidential election years since 1952, rising 78% of the time, according to data from Keith Lerner, co-chief investment officer at Truist Advisory Services.
Given the potential for volatility, Purves advises investors to protect their portfolios by utilizing put contracts, which can increase in value when stock prices fall. Kurt Reiman, head of fixed income Americas and co-lead of ElectionWatch at UBS Wealth Management, also emphasizes the importance of risk management. While he maintains a positive outlook on stocks, he suggests investors consider more stable investments, such as utility stocks and gold, as buffers against the uncertain political landscape.
Stephanie Aliaga, a global market strategist at JPMorgan Asset Management, believes that while the election may cause short-term volatility, any fluctuations are likely to dissipate once the results are finalized. “Elections create uncertainty, but election results ultimately diminish and reduce that uncertainty,” she stated. “At the end of the day, you do end up with this almost post-election boost or rally because the uncertainty is cleared.”
As the election date approaches, the combination of a tight race and concerns over a potential contested outcome means that investors are closely monitoring political developments while trying to balance their portfolios against market risks. The hope is that, regardless of the election’s outcome, the market will stabilize in the aftermath, allowing investors to regain confidence as the political landscape becomes clearer.
In conclusion, the upcoming presidential election is shaping the outlook for the stock market, as investors grapple with the potential for uncertainty and volatility. With both sides in a virtual dead heat and a history of contested results, the implications for the financial markets are significant. Investors remain cautious but optimistic, navigating the complex interplay between political events and economic performance.
(Source:www.reuters.com)
