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Politics may be volatile this year, but markets won’t: Morning Brief
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Washington has been the subject of questions about whether Joe Biden should drop out of the presidential race since his poor debate performance a few weeks ago.
But while political TV networks and newspaper editorial pages have been heatedly discussing the issue, stock markets have barely shrugged. That’s not an unusual reaction, but it remains somewhat puzzling given that this is an unusual election on several fronts.
The S&P 500 is up about 2% since President Biden’s much-criticized debate on June 27. And the VIX index — which measures volatility and serves as a sort of barometer of stock market sentiment — has barely budged.
In fact, if you consider July 9 as the midpoint of this election year — as Bespoke Investment Group did in a recent analysis — you’ll see that the VIX reading was the lowest for a presidential election year since 1992.
There are several potential reasons why stocks have declined while the political class has been talking.
One: Are investors seeing the race as a win-win? If Biden stays in the race and is reelected, it could mean the status quo continues in a year that saw 37 record closes for the S&P 500 through Wednesday’s close. If Donald Trump prevails, his presidency could be marked by a decrease in regulation — something some CEOs would welcome.
Of course, when Trump first won the presidency, stock markets plunged only to recover and bounce back. It’s hard for investors to accurately predict the real effects of a president on the economy and markets. (And as our Rick Newman writtenthe economic power of the presidency is often exaggerated in any case.)
Two: All this talk won’t make a difference in the race. Some politicians analysis to have found that voters’ preferences did not change after the debate.
Three: It may all come down to timing. The election is four long months away. As Bespoke wrote in its note to clients, “Although it is low now, there is a good chance that the VIX will rise before the election. Since 1990, the median maximum increase in the VIX during the four months following July 9 was 8.9 points, while in election years, the median increase in the four months following was 13.1 points.”
This means there is still plenty of time for election anxiety to trickle into action.
The story continues
Bespoke’s Paul Hickey will be on Yahoo Finance on Thursday at 4pm.
Julie Hyman is the co-anchor of Yahoo Finance Live, weekdays 9am-11am ET. Follow her on Twitter @juleshymanIt is to read your other stories.
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