The U.S. stock market faces growing uncertainty as investors brace for multiple risks, including the upcoming presidential election. The Cboe Volatility Index (VIX), a gauge of market fear, is hovering around 20, compared to its 2024 average of 14.8. Historically, the VIX increases by about 25% from July to November in election years, reflecting heightened market concern over policy shifts and election outcomes.
This year, the VIX’s rise is compounded by economic uncertainties and Federal Reserve policy changes. The S&P 500 experienced its worst weekly loss since March 2023 following disappointing jobs reports, despite a nearly 15% gain this year.
With the election debate between Kamala Harris and Donald Trump on Tuesday, the VIX futures for October show a minimal “election bump” compared to past cycles. The volatility gap between high and low futures is narrower than in 2020 and 2016.
Recent volatility spikes, like the one on August 5, reflect market jitters over economic and geopolitical risks. Analysts from Societe Generale suggest maintaining hedges for the next three to six months due to potential volatility from unexpected economic events and geopolitical tensions.
Despite these concerns, some investors believe the election will not significantly impact markets, citing consistent stock performance under both Trump and Biden. Seth Hickle of Mindset Wealth Management notes that the similarity in Harris’ policies to Biden’s might reduce market anxiety.
However, the debate could still introduce volatility, as noted by Amy Wu Silverman of RBC Capital Markets. “The potential for market reaction remains high, given the uncertainty of a new Democratic candidate emerging,” she said.
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