US election may not spark market growth

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Despite the fact that Trump is gaining in the polls and Harris is losing momentum, the U.S. election may not elicit the significant market reaction that investors anticipate.

The U.S. presidential election is imminent, and although the focus is on Trump vs. Harris, financial markets may not be as invested.

Investors are not placing all their bets on the election altering significantly, despite the fact that Trump and Harris are neck and neck, according to the most recent NBC News poll. In reality, numerous individuals are asserting that the market has already factored in a Trump victory, and possibly a complete Republican victory.

The S&P 500 has increased by 22% this year, and the Dow and S&P both experienced their strongest six-week rally of the year. Stocks have been performing well. Historical data also indicates that the market performs well following a strong pre-election surge.

According to CFRA Research’s chief strategist, Sam Stovall, this typically results in a “further improvement” in November and December.

However, it is important to note that history does not guarantee anything, and certain investors are closely monitoring sectors such as financials, IT, and communication services in order to stimulate growth. Energy, materials, and consumer staples? Not as much.

Additionally, let us clarify one point. Investors have acquired the knowledge that it is unwise to place excessive wagers on election promises in terms of market performance.

However, it is unnecessary for investors to concentrate on politics. Although there is some optimism that Harris will prevail and a divided Congress—Democrats in the House and Republicans in the Senate—could be advantageous for equities.

In the event that Trump prevails, the stock market may experience a surge in optimism; however, it may also prompt enquiries regarding trade. It is possible that Trump’s proposal to impose tariffs of 100% on all countries could disrupt global trade. Tariffs have the potential to impede economic growth, which is detrimental to the cryptocurrency industry.

One significant risk that is hovering over the election is time delays. We may spend an extended period of time waiting if the race is too close to call. That type of uncertainty is a conducive environment for market volatility.

The likelihood of a delayed outcome is high, according to Monica Guerra of Morgan Stanley. With the slowdown in the count caused by mail-in ballots and close contests, it may be days, or even weeks, before the victor is determined. This will result in a significant increase in volatility.

The Cboe Volatility Index experienced a 40% increase in five consecutive days following the 2020 election, culminating in the declaration of Biden as the victor. Volatility persisted for over 30 days, or until December, during the Bush-Gore fiasco of 2000.

Investors are required to consider their long-term objectives and anticipate market volatility during the election season. “We recommend that investors maintain their long-term objectives and prepare for election-related volatility,” Guerra stated.

However, the truth is that certain investors are not waiting for clarity. They are already preparing for a bullish surge to conclude the year. Baird is advising investors to “lean into the uncertainty” and take a risk on high-growth sectors and assets.

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