Volatile Week Ahead as Election Looms

We are entering the final week before the election and a third round of stimulus appears dead as the parties hunker down for the voters to have their say. In addition, COVID appears to ramping up again across the Western World. All of this is a great deal of negative uncertainty which pushed the market into an almost -2% drop today. Stocks will likely be volatile over the next week as investors brace for all of the potential outcomes from such a significant decision as next week’s election.

When facing an uncertainty ahead, the market tends to price in much closer to a worst case scenario. We humans tend to react more to negative stimulus than positive. Thus it is likely that the market is pricing a very difficult election based on all of the terrible scenarios we have read about in the news. If we get a clear winner, either way, and avoid the worst, I would expect markets to react positively. We will be watching very closely.