As the stakes of the upcoming presidential election rise, Wall Street is exhibiting an unusual calm, with investors hesitating to place bets on the outcome. We’re entering the final two months of the presidential election cycle, and typically, the U.S. stock market rallies during this period. However, this year’s race is incredibly tight, and investors are growing increasingly concerned about potential disputes that could lead to a prolonged uncertainty over the victor, potentially triggering a sell-off and unsettling the post-election market.
With just under a month until the November 5 election, the latest Reuters/Ipsos poll shows Democratic candidate Kamala Harris slightly ahead with 46% support compared to Republican candidate Donald Trump’s 43%. Yet, given the Electoral College system, national polls are less critical than state-level support, which currently appears evenly split.
The intense competition has led to a notable pause among investors, dubbed the “smart money,” who are reluctant to make predictions about the election’s outcome. An executive from an investment firm commented, “Given the contentious nature of the race, it’s unwise to place any bets on a result that is too close to call. The volatility makes it difficult to craft a reliable investment strategy.”
On the flip side, following Trump’s contentious attempt to overturn the results after losing to Biden in 2020, investors fear that a similarly close outcome could lead to allegations of fraud.
Tad, the Chief Investment Officer at Green Wood Capital, noted, “This election will likely be extremely tight, and the potential for controversy is higher than usual.” He added, “Markets dislike uncertainty, and there’s no doubt that they wouldn’t welcome a situation where we still don’t know who the U.S. president is a day or two after the election.” He warned that if a definitive result isn’t reached within days, stocks could experience significant sell-offs.
Unlike the 2020 election, when the market remained relatively stable despite Trump’s efforts to challenge the results, investors today may not share the same level of optimism. Concerns grow especially if either party voices doubts about the election and garners support from fellow legislators and election officials in key swing states.
Recalling the heated contest between George W. Bush and Al Gore in the 2000 election, where a recount in Florida left the nation in suspense for over a month, it caused steep declines in the stock market during that period. From Election Day until Gore conceded in mid-December, the S&P 500 dropped by 5%, with total losses reaching 7.6% in November and December.
Experts are now advising investors seeking to hedge against election-related volatility to consider purchasing put options, as well as looking into utility stocks and gold.
Moreover, both Harris and Trump are planning to increase spending, but the bond market anticipates that Congress will remain divided, hindering the administration’s initiatives. Some fund managers caution, however, that the bond market may be overly confident, underestimating the chances of a new president implementing bold budgetary measures, which could lead to inflation increases and rising bond yields.
