As the presidential election began, US markets rose and the currency dropped with significant ramifications for future economic policies.
Even though the markets appeared to be calm, Wall Street was getting ready for a long night of potentially controversial ballot counting and significant fluctuations regardless of the result. The S&P 500 and Treasuries’ volatility metrics, as well as assets like Bitcoin and the Mexican peso, which are seen to be among the best indicators of the election mood, were being keenly watched.
鈥淲hat you can see across markets now is that no one is ready to take clear investment positions on the election,鈥� said Alexandre Hezez, chief investment officer at Groupe Banque Richelieu in Paris. 鈥淭he uncertainty is palpable across all asset classes. There鈥檚 such a massive gap between the program of the two candidates that caution is of the essence.鈥�
The S&P 500 saw a 0.4% increase. The yield on the 10-year Treasury increased by three basis points to 4.31%. Due to record profits and strong demand for its AI software, Palantir Technologies Inc. saw a 14% increase in value.
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Stocks have a history of performing strongly on the day of the presidential election. According to a Carson Group research, the S&P 500 ended higher in nine of the previous eleven election trading sessions in data dating back to 1928, omitting a few years when the NYSE was closed. The average gain for the index was 0.9%. For instance, on Nov. 3, 2020, the index reported a 1.8% increase.
Given that this has been one of the most intensely disputed and dramatic U.S. presidential campaigns in recent memory, anxiety was still running high on Wall Street. Although experts at Goldman Sachs Group Inc. acknowledged that there may be a spike in volatility following the election, they also noted that the US economy is expected to remain strong in the long run, which will help stocks.
According to the strategists led by Andrea Ferrario, even when accounting for the risks associated with Tuesday’s presidential election, the likelihood of a bear market in the upcoming year is only 18%. The Goldman strategists wrote in a note that “as long as they are driven by better growth, equities should be able to digest higher bond yields.”
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The Federal Reserve’s interest rate decision on Thursday and Jerome Powell’s press conference, where he will provide information on the interest rate path, may catch some of the market’s attention later this week.
鈥淭he big question is, can the Fed deliver four to five cuts in 2025, or is there this fear that inflation will stop the Fed halfway through its tightening cycle?鈥� said Ludovic Subran, chief economist at Allianz SE. The latter 鈥渨ill send shockwaves through the US economy.鈥�
The market is therefore set up for volatility this week. Stuart Kaiser, the head of equities trading strategy at Citigroup, said that options data points to a 1.8% move in either way for the S&P 500 on Wednesday.
