Market Volatility and the Upcoming US Election

Investing.com — Market volatility is likely to rise ahead of and may persist beyond the upcoming US election, according to Evercore ISI strategists.

>A rise in volatility, already occurring and similar to 2016’s and 2020’s run-up, remains base case,
they wrote in a Sunday note.

Election Predictions

The current odds favor a win by former President Donald Trump, with Evercore's client flash poll showing a swing toward 55/45 in his favor.

Evercore notes that a "contested result" in the election could "sour sentiment," causing a further selloff in markets if uncertainty lingers.

In contrast, a "clean" and undisputed outcome is more likely to trigger a positive reaction, potentially leading to what Evercore describes as a year-end "meltup." This optimism is fueled by factors such as the Federal Reserve's expected rate cuts, controlled inflation risks, solid economic growth, and a surge in AI adoption.

Under these conditions, Evercore maintains its target for the S&P 500 to reach 6,000 by year-end.

Historical Patterns

2024 has followed the historical pattern seen in previous election years where Congressional control is closely contested. In these years, it is typical for the S&P 500 to experience double-digit percentage movements, either up or down, according to Evercore.

>Year-to-date gains are all the more extraordinary, given that uncertainty on the Election has seen a change in candidates, assassination attempts and the fourth largest volatility spike ever,
the note states.

Sector-wise Analysis

Evercore highlights several scenarios for how markets could respond to different election outcomes.

• In a Trump victory, sectors like Financials, Oil & Gas, and potentially Defense could benefit.
• Conversely, a victory by Kamala Harris would see a boost for renewables and health insurers tied to Medicaid.

Moreover, the investment bank expects a long-term bullish trend for sectors like Technology, particularly software, and Small Caps, as they are likely to outperform in a lower-rate environment.