What does US vote mean for markets?
Although investor nerves are relatively calm now, with the US presidential election less than a month away, stress- levels among most market participants are still expected to be tested in the weeks to come.
The upcoming US presidential election is widely viewed as a likely important catalyst for stock market moves in the coming months, as investors gauge the probabilities of a contested vote and the policies a potential winner would en act.
“While every US presidential election is contentious, this year’s race seems especially divisive,” noted Colin Moore, global chief investment officer at asset manager Columbia Threadneedle Investments.
“Partisanship is extreme, and the difference between Donald Trump and Joe Biden in approach, personality and behaviour is stark and the charged rhetoric may increase the uncertainty and anxiety for investors as we approach Election Day,” Moore added. “Most recently we saw evidence of this anxiety as the market reacted to news of President Trump’s positive Covid- 19 test.”
During the month of September, markets witnessed bouts of volatility and largely ended the month lower, but the trajectory has been moving upwards since as investors are turning comparatively less nervous about the upcoming national election.
This is mainly due to the polls continuing to show a wide lead for former Vice- President Joe Biden, the Democratic nominee.
How past votes hit markets
A review of market data for the S& P 500 going back to the 1930s revealed that certain patterns emerged over those 90 years. The analysis showed that, on average, both equity and bond markets showed more muted performance in the year leading up to a presidential election than they did at other times.
After an election, stock market returns tend to be slightly lower for the following year, while bonds tend to outperform slightly after the election.