
Wall Street is on the brink of a significant moment, with only one trading session remaining before U.S. voters commence the process of choosing the next president, a decision that could shape the economic trajectory for the coming four years.
Traders are abuzz with speculation, frequently consulting the latest polls and election betting markets to determine which candidate—Republican Donald Trump or Democrat Kamala Harris—is leading, and what implications this may hold for their financial strategies. There is some conjecture that Wall Street might be favoring a Trump victory; however, there is notable restraint when it comes to making stock market investments based on election outcomes.
Professional investors are aware of the financial gains that can be achieved by accurately predicting the election winner. However, the current election is deemed too close to call, resulting in many investors being cautious due to the high risk of error. Eric Diton, president and managing director of the Wealth Alliance, mentioned in an interview that they are not positioning for an electoral outcome due to the unpredictable nature of the race.
Anticipated market volatility is expected this week, potentially exacerbated by a contested result that could prolong the vote count. This uncertainty is reflected in the Cboe Volatility Index, which has risen above 20 over the last four sessions, an indicator of increasing market stress. Consequently, investors appear hesitant to predict market winners and losers based on the next likely president of the United States.
Dave Lutz, equity sales trader and macro strategist at JonesTrading, expressed skepticism over the reliability of polls, stating that they offer no clear advantage in assessing who holds the lead.
There are additional dynamics poised to influence market movements around the election. Following Election Day, the Federal Reserve’s interest rate decision and Chair Jerome Powell’s press conference are expected on Thursday, alongside significant corporate earnings reports, including those from Nvidia Corp.
Given these considerations, Lutz advises holding cash reserves ready to capitalize on short-term opportunities that arise as election results unfold. Robert Schein, chief investment officer at Blanke Schein Wealth Management, has also increased cash-equivalent holdings in anticipation of market volatility.
Anwiti Bahuguna, chief investment officer of global asset allocation at Northern Trust Asset Management, emphasized the speculative nature of the current market and the unpredictable policy outcomes from either presidential candidate through Congress.
Despite market jitters, indicated by the S&P 500 trading near an all-time high and elevated VIX levels, hedge funds have adopted additional caution by betting on more significant price swings. Recent Commodity Futures Trading Commission data revealed that large speculators have turned net long on VIX futures for the first time since January 2019.
Rocky Fishman, founder of Asym 500, noted that options market data demonstrates a defensive stance among traders, likely due to imminent reports and data, including the Federal Reserve’s decisions, corporate earnings, and inflation figures.
Looking beyond the immediate election, corporate executives have been cautious, with relatively few purchasing their company shares in October, reflecting a low buy-sell ratio. Wall Street professionals suggest focusing on long-term investments, considering robust corporate earnings, sustained economic growth, falling inflation, and potential interest rate cuts.
Northern Trust remains overweight on U.S. equities and underweight on bonds, aimed at hedging against inflation risks. Furthermore, they recommend allocating investments towards real assets to guard against potential future volatility.
As interest rates continue to be restrictive, leading to increased volatility, a conservative approach to investments is advised by Brian Mulberry, client portfolio manager at Zacks Investment Management. With uncertain election outcomes, patience is deemed the safest strategy for investors, focusing on long-term macroeconomic conditions rather than immediate results.
Mark Luschini, chief investment strategist at Janney Montgomery Scott, suggests taking a broader view beyond the election day, considering what the macroeconomic conditions might look like in the coming months.