U.S. election is just one risk among many for nervous stock market

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Volatility elevated as risks mount

Growing risks to the U.S. stock rally are spurring demand for portfolio hedging, options markets showed, as investors grapple with U.S. economic uncertainty, shifting Federal Reserve policy and a looming presidential election.

The VIX typically rises around 25% between July and November in election years, as investors sharpen their focus on the market implications of candidates’ policy proposals, BofA data showed. “This is an uncertain market,” said Matt Thompson, co-portfolio manager at Little Harbor Advisors. “The market is essentially saying, we know risk is elevated, but ... we don’t know what the problem is going to be.”

In the 2020 and 2016 election cycles, the futures curve presented a 7.3 and 3.4 point gap, respectively, between the months with the highest and lowest volatility, a Reuters analysis of LSEG data showed.The VIX has been in sharper-than-usual focus for investors in recent weeks after the index posted its largest ever one-day spike on Aug. 5, during a sharp market sell-off spurred by economic worries and an unwinding of the global yen carry trade.

 

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