Economic and Market Review
Upcoming Election Fuels Market Volatility
Investors are holding tightly onto their portfolio reins to get through the November elections, with the potential for a leadership change in the White House and Congress causing volatility in the markets. COVID-19 has muddied the track, but the stock market has been a good tip sheet for calling previous presidential election winners. If the S&P 500 Index is higher in the three-month period before the election (from August 3), the incumbent party has won; if the stock market is lower in the three-month period, the opposition party has won. This has been true in every presidential election since 1984, and 87% of the time since 1928. In a sense, it’s a good thing the markets are not taking the elections lightly and volatility is high. Despite Biden’s current lead in the polls, the markets are expecting a near photo finish in which it might take days to determine the winner. The implied volatility priced into the S&P options markets on election day and the week afterwards is in the 3-7% range.
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Post 4: Upcoming Election Fuels Market Volatility
Is a leadership change on the horizon? Ask the market. Past results show it’s a good tip sheet.