There is one trading session left. That’s all Wall Street has before Tuesday, when U.S. voters begin the process of electing the next president and potentially determining the direction of the economy for the next four years.
Traders are buzzing about the odds, constantly checking the latest polls and movements in the election betting markets to predict whether Republican Donald Trump or Democrat Kamala Harris is ahead and what that means for their positions. Speculation is rampant in some quarters. Wall Street is betting on Trump. But when it comes to actually investing money in the stock market based on this, things are quiet.
Investment experts know that calling a winner before it happens can result in a windfall. The problem is that this election too close For many people, the risk of missing out is too high to bear.
“We are not positioning ourselves on the outcome of the election because this election is a coin flip,” Eric Diton, president and managing director of Wealth Alliance, said in an interview. “There’s no point in betting.”
Most traders expect volatility this week, with the vote count likely to be delayed for weeks or even months due to a disputed outcome. This explains why the Cboe Volatility Index has risen above 20 in the past four sessions, a level that typically indicates increasing stock market stress. And that’s why investors are less eager to pick winners and losers based on who will be the next president of the United States.
“The polls have been so wrong in the past,” said Dave Lutz, a stock sales trader and macro strategist at JonesTrading. “There is no edge to know who is winning.”
cash safe
Another positioning challenge is the number of additional catalysts surrounding the vote that are likely to move the market. Election Day is followed by the Federal Reserve’s interest rate decision on Thursday and a press conference by Federal Reserve Chairman Jerome Powell, where he is expected to provide details on the central bank’s interest rate path. And many U.S. companies are still scheduled to report earnings, with chip giant Nvidia Corp.’s results due on Nov. 20.
This explains why Lutz is not specifically positioning himself for election. What he recommends instead is “sitting on some cash” that can be deployed when short-term opportunities open up, much like individual stocks or sectors have a knee-jerk reaction when a winner emerges.
“I would say a lot of investors are in exactly that position,” Lutz said.
Robert Schein, chief investment officer at Blanke Schein Wealth Management, said he had increased his holdings of cash equivalents from his usual 5% to 10% ahead of the election. His strategy is to be ready to pounce on assets when the results inevitably trigger volatility in some part of the market.
“Investors need to look at the ongoing election risks,” Anwiti Bahuguna, chief investment officer of global asset allocation at Northern Trust Asset Management, said in an interview. “It’s so speculative that traders can’t even take positions at this point, and we don’t know what policy proposals either candidate will actually get through Congress.”
Perhaps unsurprisingly, the markets look nervous. The S&P 500 is trading near all-time highs and the VIX is above 20. The last time S&P hit this high for its so-called fear index was during the Delta variant coronavirus outbreak in March 2021. , hedge funds are betting on broader price movements. Big speculators turned net long on VIX futures for the first time since January 2019, data compiled by the Commodity Futures Trading Commission showed earlier this month.
According to Rocky Fishman, founder of Asym 500, options market data shows traders are taking a defensive stance, assigning higher-than-normal valuations to hedge against rapid selling. Some of this is being driven by a flurry of reports and data over the coming days. , including the Federal Reserve’s decisions, imports and inflation numbers, he added.
“The market is clearly pricing in a day of high volatility on Wednesday when we learn the election results, but the period surrounding it is anything but quiet,” Fishman said.
Beyond the elections
Corporate insiders are also reluctant to enter the stock market. According to data compiled by the Washington Service, 261 corporate executives bought shares of their companies in October, the fewest since at least 2017 and the second-lowest buy-sell ratio since the spring of 2021. It appeared to have plummeted.
Investors looking for safer stock investments should look past the election noise, according to some Wall Street experts.
“This election is a very low-probability event, so we expect the next month to be very volatile,” Northern Trust’s Bahuguna said. “But ultimately what supports the stock market are decent corporate earnings, strong economic growth, falling inflation and interest rate cuts from the Federal Reserve.”
Northern Trust is overweight in U.S. equities to build on the resilient economy and underweight in bonds to hedge against inflation. The company is also overweighting real assets, including infrastructure, natural resources and real estate, to protect its portfolio from future disruptions if the labor market remains tight and economic growth remains strong.
Others are looking at corporate profits, especially higher quality balance sheets as interest rates continue to rise as the Federal Reserve begins to cut them.
“Interest rates remain constrained and volatility is likely to increase through the end of the year, so a more conservative approach is appropriate,” said Brian Mulberry, client portfolio manager at Zacks Investment Management.
The point of all this is that in elections where there is no clear favorite, the safest bet for investors is patience. That’s what Wall Street preaches. At least for now it is.
“If it had been a cleaner decision, it would have been reflected in the market and there would have been very little left to leverage,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott. “But in these tight circumstances, it is better to keep your thoughts across the horizon and think about what the macroeconomic situation will look like 6 to 18 months from now, rather than just looking at the results of the day.”
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