How elections spur market volatility

As the US is in an election year, financial markets are bracing for potential volatility. The recent presidential debate between Biden and Trump has heightened the focus on the political landscape and its impact on economic conditions.

Yahoo Finance's Josh Schafer offers insights into historical market trends during election years.

For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.

This post was written by Angel Smith

Video transcript

Vicks has been hovering just near historic lows this year.

But is the presidential election going to change that here to discuss?

Maybe the upcoming volatility that we could see at the market is our very own Josh Shaffer and Josh.

It doesn't look like the volatility has hit the markets just yet.

But you've got a chart of the day for us here.

Yes, our chart of the day in the Morning Brief newsletter this morning came courtesy of our friend Keith Lerner over at Truist.

And what Keith highlights is, essentially, you don't see a lot of volatility in markets until those two big bars that are sticking out on that graph October November.

So you usually see a volatility spike in October leading into the election and that it volatility sort of dies down after the actual president is elected in that first week of November.

And guys, I highlighted this chart this morning because I think the broad takeaway here is we're going to start talking a lot more about the election.

You're going to start hearing a lot more about the election in the news, especially in normal mainstream news, maybe more so than our financial news, and the takeaway for investors is largely it's not impacting the market right now.

It's likely to not impact the market, really, for a while leading into this election until you really get some uncertainty.

I think today is probably a good example You guys had our senior columnist Rick Newman, on earlier this morning.

You're talking about the potential of President Biden not actually being the candidate for the Democrats.

The market is holding up fine.

Volatility isn't doing anything, and it's not really impacting stocks.

So I just think it's an important thing to sort of keep hammering home to people that, yes, this is a big story and it is something that matters.

But it doesn't necessarily mean that you should panic when it comes to your investments, right?

And and I think that chart that we just had up on the screen, it actually is a perfect indicator of when people actually start to paying attention and deciding how they feel in the weeks leading up to when they're actually going to cast their vote, too, and how they feel as well with the investments that they've made as well.

Going into that and it sort of gets into two.

Keith got further into this in his note, talking about when you think about it.

The president.

In terms of markets, you're really thinking about how it's going to impact the normal, fundamental things that you would look at for the stock market or for individual stocks.

Right?

You're talking about potential tax policy that could maybe later impact companies or something.

Overall macroeconomic plans that could later impact companies.

It's not gonna hurt earnings next quarter.

It's not gonna hurt earnings in two quarters, right?

You're thinking about overall trajectory, and so it's a lot bigger picture and not necessarily an easy read unless you're by DJ T. And then maybe they'll be volatility and and we focus in on the top of the ballot the president.

But it's all those down ballot cast votes as well that are particularly critical to all of the things that could actually move where Congress votes where ultimately we see the House and the Senate make up that could either be logged or could fast track what the presidential agenda might be as well that has campaigned on.

And that's perhaps where it gets back into the thesis of what you were mentioning within this particular note, too.

We'll check in on volatility in October, I was gonna say, And you also got to ask yourself after last night's performance, If we do see somebody, if we do see Biden, maybe step aside, that's all the talk this morning.

Maybe that's going to introduce volatility potentially a little bit earlier.

The final thing.

I didn't say on this, too, that I think is relevant.

The reason we're talking about volatility is because it has.

We haven't seen volatility at all, and that is part of why we've been able to rally right.

If we were to see volatility, that is sort of the key, one of the key risks to the market rally that people are highlighting, so that would be a concern.