As the Election Looms, Investors See Uncertainty. They Don’t Like It.

The stock market has been on a tear for much of 2020, but there is now more volatility as investors worry about the outcome of the presidential vote.

The S&P 500 Since Trump Was Elected

Source: Refinitiv • Through Tuesday

The New York Times

By Matt Phillips

Investors have spent recent months pushing the stock market to record highs, seemingly undeterred by the worst pandemic in a century and the enormous toll it has taken on the United States economy.

But now, politics is giving them agita.

In the last few weeks, the market’s results have reflected the uncertainty weighing on investors’ minds as they prepare for what could be a politically turbulent stretch — including a Senate fight to fill the former Supreme Court seat of Justice Ruth Bader Ginsburg and the November presidential election, which could result in a constitutional crisis if President Trump refuses to accept the judgment of voters.

And the first presidential debate didn’t necessarily ease investor’s minds. Paul Donovan, the chief economist of UBS Global Wealth Management, wrote in a note to clients that, if anything, Tuesday’s debate “may have increased expectations for a contested election result,” after Mr. Trump again suggested that he would challenge an unfavorable outcome.

Stocks have lost steam since notching new highs in early September, with the S&P 500 stock index down about 5 percent for the month as of Tuesday’s close, facing its first monthly decline since March. And last week, the index hovered around correction territory — a Wall Street term used to signify a market drop of 10 percent or more from a recent high. On Wednesday, the market was up 1 percent in early trading.

“Definitely, politics are coming into play,” said Stephen Gallagher, U.S. chief economist at the global investment bank Société Générale in New York.

Some Wall Street observers attribute the recent market slump to the fact that stock prices had become too expensive after rising roughly 60 percent since late March, when the Federal Reserve moved to prop up the economy. But analysts say that the market also dipped because professional money managers sold shares to reduce their risk and raise cash, moves that are typical responses to market uncertainty.

Heading into the year’s final quarter, investors are also coming to terms with the likelihood that there will be no more stimulus money coming, as the approaching presidential election paralyzes Washington’s ability to provide fresh support to the struggling economy. The “lack of the last piece of fiscal stimulus that people were counting on or hoping for” has left investors nervous, Mr. Gallagher said.

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