(Bloomberg) — Stocks struggled for direction, bonds rose and the dollar fell, with polls continuing to depict a tight race in the US presidential election ahead of the Federal Reserve decision.
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Options markets show many on Wall Street staying defensive, with the S&P 500 wavering as flurry of polls showed US voters narrowly split both nationally and across the pivotal swing states that will decide the election. Several traders see volatility coming, with the likelihood of a disputed result dragging the vote count out for weeks or even months. This explains why the Cboe Volatility Index remains stuck above 20, a level that typically signals rising jitters. Treasury yields fell across the curve and dollar dropped the most since August.
The other positioning challenge is the number of additional catalysts surrounding the vote that are likely to move the market. Election Day will quickly be followed on Thursday by the Fed decision and Jerome Powell’s press conference, where he’ll give details on the central bank’s interest-rate path. And a big chunk of US companies are still due to report their earnings.
“Normally, the Fed rate announcement would dominate the week’s discussion, but this isn’t just any week,” said Chris Larkin at E*Trade from Morgan Stanley. “Traders and investors who have been waiting for the outcome of the election have to prepare themselves for the possibility of a delayed outcome, and the potential impact of that uncertainty on the markets.”
Regarding equity market performance, the S&P 500 tends to see positive returns to close out the year after Election Day, according to Bespoke Investment Group. For all years since 1990, the median gain has been 3.3% with positive returns 25 out of 34 times. For election years, performance has tended to be modestly stronger with a median gain of 3.9% and gains six out of eight times.
The S&P 500 rose 0.1%. The Nasdaq 100 added 0.2%. The Dow Jones Industrial Average dropped 0.3%.
Treasury 10-year yields declined eight basis points to 4.30%. The Bloomberg Dollar Spot Index fell 0.5%. Oil advanced after OPEC+ agreed to push back its December production increase by one month and tensions heightened in the Middle East.
With both US presidential candidates at a “dead heat” heading into next week’s election, markets are bracing for a result that could lead to a wide range of policy outcomes. Yet, it is notable that, since 1933, equities have almost always risen by double-digits by the end of a president’s term, regardless of their party affiliatio according to Seema Shah at Principal Asset Management.
