Stock market volatility ahead of presidential elections typically starts picking up now
Brace yourself. Market volatility will likely increase from here as the race for the White House enters its final weeks, according to Wolfe Research. Technical strategist Rob Ginsberg tracked the average move of the Cboe Volatility Index, or VIX , during a presidential election year. He excluded 2008, a year that saw unusual market movement as America grappled with the global financial crisis. Ginsberg’s data shows that the VIX, which has been dubbed Wall Street’s “fear gauge,” tends to spike into early November, which is when Election Day takes place. After that, the index has historically dropped as the month progressed. Below is Ginsberg’s chart of the average path over the typical election year. Note that the Y-axis charts cumulative daily percent change in the VIX, rather than the index’s average reading for each day. This potential volatility spike ahead can bode poorly for stocks, which have already seen rocky trading to start October. While Ginsberg said Friday’s blockbuster jobs data can soothe the market for now, he still sees a downturn on the horizon. “Friday’s favorable economic data helped to bolster action for now, but we see it more so as pushing off the inevitable,” Ginsberg said. “The VIX historically spikes into the election. With momentum rolling over and several sectors seeing healthy pullbacks of late … we feel the S & P is overdue for another 3 – 4% correction.” Traders already got a taste of a high-volatility market last week. The VIX at one point jumped above 20 as Iran’s missile attack on Israel worried traders about escalating conflict in the Middle East. The index traded back above that level on Monday, meaning the history of how it moves around the election could be repeating itself. The S & P 500 lost 0.3% during the day, along with the Nasdaq Composite and Dow Jones Industrial Average, giving back some of Friday’s gains. Any troubles in the market into Election Day would mark a turn after an unusually strong year. Notably, Bespoke Investment Group found the S & P 500 notched its largest gain over the first nine months of a year since 1997. What’s more, Carson Group data showed it was the strongest first nine months for the broad index in an election year going back to at least 1950.
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