Investors From Stocks to Crypto Brace for US Election Swings

Natalia Kniazhevich, Vassilis Karamanis, and Edward BolingbrokeKevin Headland, co-chief investment strategist of Manulife Investment Management, joins us and talks about the impact of the U.S. election on the S&P 500.

Bond yields have been rising since the Fed cut rates in September, leading investors to pull back on some futures positions and add tail-risk hedges on higher rates. For the most part, currency traders are betting on wider swings, with volatility for the yuan, Mexican peso and euro increasing on uncertainty about trade and tariffs. The Cboe Volatility Index slipped climbed 2.2% as of 10:29 a.m. in London on Monday.

“We continue to see an interest in trades around the election with a pick up in recent days,” said Daniel Kirsch, head of options at Piper Sandler & Co. “Clients who expect Donald Trump to win the election are adding exposure to financials and crypto stocks, those who are betting on a Harris win buy options on renewable-energy stocks. There’s also a pick up in hedging with traders piling into put options for the S&P 500 and QQQ ETF.

While volatility has been elevated, it’s pointing to about a 1.7% move for the S&P 500 the day after the election — not an outrageous swing. The implied move has fallen steadily from a peak of around 2% in early October to be about in line with the long-term average for past elections, according to Stefano Pascale, head of US equity-derivatives strategy at Barclays Plc.

“Assuming a smooth post-election period, we believe these hedges may unwind and we could see a sharp drop of VIX and flatter skew,” said Ren. “If both happen, it could force more buyers into the market and push the market higher.”Short-term currency options that are now pricing in risk around the election have seen an implied volatility jump in anticipation of wider swings after the US vote.

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