On Market Volatility and the U.S. Presidential Election

• As the 2024 U.S. Presidential election approaches, financial markets may encounter turbulence.

• Market participants across all sectors are monitoring price volatility in stocks, currencies, commodities, and other asset classes.

• The CBOE Volatility Index (VIX), widely known as Wall Street's "fear gauge," serves as a key measure of expected stock market volatility for the S&P 500 over the next 30 days.

• The chart below presents the VIX since January 2000.  Notable spikes occurred during the Financial Crises, when it hit 80.8 and the COVID outbreak when it peaked at 82.69.  A VIX value over 20 is considered elevated. On Friday, the VIX closed at 21.8

OUR TAKE
 

• Drivers of market volatility include 1) changes in monetary policy, 2) release of economic data, 3) international/political conflicts, 4) regulatory changes, 5) investor sentiment and 6) market liquidity.

• The VIX is generally interpreted within the following levels - below 12: extremely low volatility, indicating market complacency; 12-20: normal market conditions; 20-30: elevated uncertainty; above 30: high volatility, significant market stress; above 40: extreme market fear or crisis conditions

• As media attention focus on prediction markets and polling results, it may take several days or weeks to affirm the winner of the U.S. presidential election. Regardless of the winner, concerns about fiscal spending, federal debt levels and the potential for additional inflation may drive enhanced level of market volatility.