Could the 2020 US presidential election be the most gambled event in history?
This means that bets on the political race between President Donald Trump and former Vice President and Democratic challenger Joe Biden have already exceeded total bets on top sporting events, like the National League Super Bowls. football, National Basketball Association finals, and big-ticket boxing. fits, says Watt.
But there is, gargantuan sums at stake on Wall StreeIt isn’t too, and this coming week could represent the moment of truth for traders who have been shaken up recently as the much-anticipated election approaches.
The Dow Jones closed 6.5% lower last week and the S&P 500 lost 5.6% on the same stretch, while the Nasdaq was down 5.5%.
However, it was not just the political turmoil that drove the Dow Jones Industrial Average DJIA this week,
the S&P 500 SPX index,
and the Nasdaq Composite Index COMP,
to record their worst weekly drops since March – there has also been a resurgence of the coronavirus pandemic.
Next week, traders face the prospect in some U.S. states of a return to business closures like those seen in March as COVID-19 cases hit daily records.
Stephen Dover, head of equities at Franklin Templeton, put it this way: “This next week will be a confluence of driving market events: of course the elections, the recovery, the profits and the growth of Covid infections.”
Key events for the week ahead include Tuesday’s U.S. election results, an update from the Federal Reserve at its meeting on Wednesday and Thursday, and the U.S. Department of Labor’s October jobs report on Friday.
“Next week will be a volatile week for the market given all the big events,” Lindsey Bell, chief investment strategist at Ally Invest, told MarketWatch.
Will Trump overcome betting odds and opinion polls to stage a return to the constituency against Biden like he did in 2016? Or will the congressional races be a so-called blue wave in Washington, resulting in a Democratic sweep of both the White House and Congress that could usher in another broad budget relief package to tackle the economic damage from the pandemic ?
“If Democrats get a strong majority in the Senate, there will likely be more laws that affect the markets and there will be sentiment shifts in many areas of the market,” Franklin Templeton’s Dover explained.
Specifically, Dover believes the congressional races could prove to be a source of nervousness for markets through late November and beyond, putting downward pressure on stocks.
“It is likely that we will not know the final Senate results on Tuesday evening,” Dover told MarketWatch, while warning that the uncertainty could “add to market volatility until it is resolved, this which, due to the races in the second round, may not be resolved until January. ”
This cannot be overstated: the investment community hates the unknown.
Ally Invest’s Bell ranks the political race as the key issue next week, possibly even above the second or third wave of COVID-19 cases in the United States and major cities in Europe.
“I believe the election will be the main driver of action next week,” Bell said. “This is because the election has the most important short and long term implications for the market,” she said, while stressing that investors will seek to adjust their portfolios based on its outcome.
However, Katie Nixon, chief investment officer at Northern Trust Wealth Management, considers the deadly pandemic to outweigh all other market risk factors.
“Given the global ‘risk’ tone of the market this week, it is clear that the increase in Covid-19 cases in Europe and the United States has taken center stage in terms of key risk factors” , she wrote in a research note on Friday.
“With memories of March and April fresh on the minds of investors, many fear a repeat, and that fear has been supported by the announcement of various restrictive measures being taken across Europe.”
Against this backdrop, the Federal Reserve’s two-day political meeting on November 4-5 and Friday’s non-farm payroll report, typically a central market driver, could end up being a side spectacle for the elections and the coronavirus.
The barrage of factors is already pushing investors to prepare for wild swings in the coming week. The Cboe VIX volatility index,
a gauge of implied movements in the stock market, climbed to the highest level since about June, closing Friday at around 38.02, or well above its historical average of around 19. The volatility index tends to rise when markets go down, so it can be used by some traders to protect against future stock market declines.
Could there be a big fall ahead, given that the treacherous wall of worry in the markets must grow now? Nixon from Northern Trust, doesn’t think so.
“This is unlikely for a few main reasons: First, the March panic was exacerbated by the enormous uncertainty surrounding the virus. We now know more about the epidemiology, we have more advanced and more effective treatments, and we are perhaps a few weeks away from the announcement of a vaccine, ”she explained.
Independent market technician Mark Newton thinks otherwise and considers November and parts of December vulnerable to the post-election crisis.
“Markets will likely fall behind [November] or even from December 21 to 22, but could have a reprieve from Wednesday to Friday where rebounds are possible, ”said the market technician. But he also sees the end of November as potentially ripe for a “particularly bearish” run for equities.
“A lot of volatility and [I] wouldn’t be “surprised to see SPX 2900,” Newton wrote.
In addition, Newton speculates that new highs for stocks will not be reached in 2020 and sees a high probability of contested elections, which many expect due to the slow process of counting mail-in ballots. , among other problems.
But once the uncertainty is lifted, there may be a new way forward for long-term investors, as Bell at Ally Invest anticipates.
“At the moment we are bracing for tougher days ahead, but we are happy with the earnings outlook. Profits can also help boost the market after this particular storm, ”the analyst explained.
“Believe it or not, reports from nearly 60% of S&P 500 companies have shown that US companies are in full swing,” she said, adding that “2021 continues to be promising.”
How much return can be partially determined next week.