Volatility in the stock market has been increasing gradually ahead of the hotly contested U.S presidential election. With front runner Joe Biden’s lead in the polls narrowing, there is growing concerns that a market crash could occur should the election result in an uncertain outcome.
Stock Market Crash Concerns
Market participants are already warning that an uncertain election outcome could result in violent positioning, as was the case in 2016. The Betting markets are pricing a Donald Trump win at 36% with Joe Biden well ahead with a 64% chance.
Should President Trump win the elections against the current polls, the likelihood of major price swings coming into play in the stock market is high. Some of the assets susceptible to violent swings include Invesco Solar ETF that has gained 24% in anticipation of a Biden win. Clean energy stocks have been on a roll, having received a boost on Biden’s clean energy policies.
The options markets already hint that the ETF market could experience swings of as much as 11% in either direction once the results are out. An unexpected Donald Trump win could also result in some currencies coming under pressure, with Mexico Peso and Russian Ruble the most susceptible.
Given the increased risk of the expected swings in the aftermath of the elections, staying away of the market and avoiding risky bets should help protect one’s portfolio from unexpected losses. Staying away from the market would be an ideal way of conserving capital.
A significant drop in stock values should provide tremendous opportunities to load up on quality investments once the election dust settles down. Conversely, a stock market crash would present investment opportunities for investors with capital well protected.
It is important to note that any stock market crash in the aftermath of the election would most likely be short-lived, as was the case in the first half of the year. The stock market crashed as COVID-19 fears rattle investor’s sentiments. The market later on bottomed out and rallied to record highs. Likewise, in the aftermath of Donald Trump unexpected win in 2016, the stock market tanked 5% in pre-market before bouncing and railing by over 1%.