How Election-Year Uncertainty Makes People Money

Leading up to an election, markets often experience increased volatility due to the uncertainty surrounding the outcome and its potential impact on economic policies. Here's a breakdown of what typically happens:

1. Uncertainty and Speculation:

• Increased Volatility: As the election approaches, markets may fluctuate more due to speculation about which candidate will win and how their policies might affect different sectors. This is particularly true if the race is close or if there is a significant difference between the candidates' economic platforms.
• Sector-Specific Movements: Certain sectors may see more volatility than others, depending on which candidate is leading in the polls. For instance, healthcare, energy, and finance sectors often move in response to specific policy proposals.

2. Historical Patterns:

• Market Jitters: Historically, markets tend to be more volatile in the months leading up to the election as investors react to new information, debates, and shifts in the polls.
• September and October Volatility: These months are often particularly volatile, as they are right before the election. The closer we get to Election Day, the more the market may react to any new developments.

3. Investor Behavior:

• Hedging and Repositioning: Investors might hedge their portfolios or shift their positions to manage potential risks. This could involve moving into more defensive sectors or assets, such as utilities or bonds, or increasing cash holdings.
• Volume Spikes: Trading volumes often increase as investors adjust their strategies based on the latest news and data, contributing to higher volatility.

4. Past Examples:

• 2016 U.S. Election: In the months leading up to the election, the market experienced swings as the race between Hillary Clinton and Donald Trump tightened. The uncertainty around Trump's unconventional policies led to a spike in volatility.
• 2000 U.S. Election: The close contest between George W. Bush and Al Gore led to significant market volatility in the weeks leading up to the election, exacerbated by the uncertainty of the eventual outcome.

5. VIX Index (Volatility Index):

• The VIX often rises in the weeks or months leading up to an election as investors become more anxious about the outcome. This index is a good gauge of market sentiment during this period.

Overall, the period leading up to an election is marked by uncertainty, which usually translates into higher volatility as investors try to navigate the potential impacts of the election outcome.

To Your Trading Success,

Casey Stubbs

Keep this development on your radar as we may see increased volatility and potential trading opportunities in the near future.