Tight race is leading some to brace for obstacles that could trip up rally
A tight U.S. presidential race is leading some investors to brace for an unclear or contested election result that could trip up this year’s booming stock market rally.
“This is going to be a very close election. It just stands to reason that the likelihood of some type of dispute occurring is higher than it is on average,” said Walter Todd, chief investment officer at Greenwood Capital. He expects stocks to sell off if the result is in doubt for more than a few days.
That’s not to say the election isn’t on investors’ radar. The Cboe Volatility Index, which measures options demand for protection against stock swings within a 30-day period, has risen about 6 points from its September lows and now stands at 20.9 - a level typically associated with moderate to higher expectation for market turbulence. Some of the index’s rise is attributable to the looming election, investors say.
“It’s really not so much about the outcome as it is about the potential risk of the morning after, of the election not being considered valid by a large part of the population,” he said. “That to me is a real risk ... a litigated outcome, where the stock market probably sells off.”Markets were largely unperturbed by Trump’s attempt to overturn the results of the 2020 election. U.S.
Stocks notched sharp declines in late 2000, when the race between George W. Bush and Al Gore was undecided for more than a month after a challenge from Gore’s campaign based on disputed results in Florida, the clearest example of a contested election in recent U.S. history. Purves, of Tallbacken Capital, advises investors to hedge potential election-related volatility through puts contracts, which gain in value when stocks fall.
Uncertainty Risk Trump Poll Outcome Time Index Jpmorgan Asset Management Reuters/Ipsos Given Trump
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