Expect Volatility and a Defensive Rush Following an Unclear Election Outcome

November 4, 2020

Expect Volatility and a Defensive Rush Following an Unclear Election Outcome

11/04/2020

Tom Lee


Tom Lee, CFA

Chief Investment Officer, Equities and Derivatives

More about this author

Our investment experts share their thoughts following one of the most dramatic presidential elections in American history.

While today’s situation is unique, it’s not entirely unexpected. We knew heading into Election Day that a surge of mail-in voting increased the chances that no winner would be declared on Tuesday. According to the New York Times, 22 states and the District of Columbia allow postmarked ballots to arrive after Election Day, meaning the timing of finalized election results depends in part on when voters return their ballots.

 

Markets will tolerate the uncertainty in the short term, as long as it appears we’re moving toward a final decision. However, the markets will be less welcoming if the election turns into a protracted legal battle. Volatility erupted when the US presidential race between Al Gore and George W. Bush in 2000 resulted in no clear winner. Stocks fell as the contested election dragged on through the month. By the end of November, the S&P 500® had declined by nearly 10%, while the NASDAQ plummeted 19%. Investors sought defensive sectors and asset classes such as consumer staples and gold, and sectors expected to benefit under a Republication administration, such as energy, rallied.


We may be facing more of the same. Heading into this presidential election, the Cboe Volatility Index (VIX) indicated that investors expected volatility would surge substantially in Q4 compared with Q3. This murky Election Day result could make that vision a reality.

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The views expressed in these posts are those of the authors and are current only through the date stated. These views are subject to change at any time based upon market or other conditions, and Parametric and its affiliates disclaim any responsibility to update such views. These views may not be relied upon as investment advice and, because investment decisions for Parametric are based on many factors, may not be relied upon as an indication of trading intent on behalf of any Parametric strategy. The discussion herein is general in nature and is provided for informational purposes only. There is no guarantee as to its accuracy or completeness. Past performance is no guarantee of future results. All investments are subject to the risk of loss. Prospective investors should consult with a tax or legal advisor before making any investment decision. Please refer to the Disclosure page on our website for important information about investments and risks.

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