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.
Post 1: Q3 in Retrospect
Riding on the backs of extraordinary U.S. fiscal and monetary policy support, domestic stocks overall continued their sharp recovery from the March lows to post positive gains for another quarter.
Post 2: Uneven Recovery Creates Winners and Losers
Taking a closer look at the rise in the economy and stock market, investors will see how uneven this recovery has been.
Post 3: Large Cap Growth Fueled by Accelerated Demand for Tech Services and Race for a Vaccine
The outperformance of large cap growth stocks has actually been going on for the past decade, which makes them hard to dismount since we are likely to eventually return to the slow 2-2.5% pre-pandemic economic growth rate of the past 10 years.
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.