Yahoo Finance Politics may be volatile this year, but markets aren't: Morning Brief
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Washington has been abuzz with questions about whether Joe Biden should step aside as presidential candidate ever since his poor debate performance a couple of weeks ago.
But while political TV networks and newspaper editorial pages have been hotly discussing the issue, equity markets barely shrugged. That’s not an unusual reaction, but it remains somewhat puzzling given that this is an unusual election on a number of fronts.
The S&P 500 has risen by about 2% since President Biden’s much-criticized debate showing on June 27. What’s more, the VIX index — which measures volatility and serves as a sort of barometer of the stock market’s mood — has barely budged.
In fact, if you take July 9 as a midway point of this election year — as Bespoke Investment Group did in a recent analysis — you’ll see that the VIX reading was the lowest for a presidential election year going back to 1992.
There are several potential reasons why stocks have shrugged as the political class has chattered.
One: Are investors seeing the race as a win-win? If Biden stays in the race and is reelected, that could mean the status quo continues in a year that has seen 37 record closes for the S&P 500 as of Wednesday’s close. If Donald Trump prevails, his presidency could be marked by a decrease in regulation — something some CEOs would welcome.
Of course, when Trump won the presidency the first time around, stock markets plunged only to recover and rally. It’s difficult for investors to accurately predict the actual effects of a president on the economy and markets. (And as our Rick Newman has written, the economic power of the presidency is frequently overstated in any case.)
Two: All the chattering won’t make a difference in the race. Some political analyses have found that voter preferences didn’t change after the debate.
Three: It might just come down to timing. The election is a long four months away. As Bespoke wrote in their note to clients, “While low now, though, there’s a good chance that the VIX will move higher leading up to the election. Since 1990, the median maximum increase in the VIX during the four months following July 9th has been 8.9 points whereas in election years, the median increase over the following four months has been 13.1 points.”
That means there’s still plenty of time for election anxiety to make its way to stocks.
Paul Hickey of Bespoke will be on Yahoo Finance on Thursday in the 4 p.m. hour.
Julie Hyman is the co-anchor of Yahoo Finance Live, weekdays 9 a.m.-11 a.m. ET. Follow her on Twitter @juleshyman, and read her other stories.
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