Up till Friday, US stock markets, just like their global peers looked to have shaken off jitters from the last fortnight after the Federal Reserve and Bank of Japan delivered market-friendly policy announcements.
But what about Monday’s ‘risk event’?
‘What about it’?
That might well be the reply from many market participants, asked about the biggest US election event so far — the TV debate between Donald Trump and Hillary Clinton.
But US stocks have sold off since Friday, just days after the Nasdaq Composite index marked a new all-time high, and a two-day S&P 500 surge lifted the benchmark close to its own latest peaks.
The most obvious gauge of market misgivings, the VIX Volatility Index, posted a second straight week-on-week fall on Friday, completely wiping out an eye-catching spike from a fortnight ago.
But the so-called ‘fear gauge’ jumped as much as 18% on Monday to reclaim back almost half of its recently lost ground.
Market anxiety is creeping higher as the race to the Whitehouse tightens.
Clinton’s lead has tumbled from double digits only a month ago to single digits recently, or even neck and neck according to some polls, as illness and gaffes make her more vulnerable to a sceptical electorate.
Obamacare vs. Trump care (a bit) less
Despite well-aired wariness about the Democratic candidate, the theory goes that she remains the most ‘market-friendly’ option, given Republican candidate Trump’s unorthodox views on everything from foreign policy, economics, women, and more.
That view is balanced by a Clinton candidacy that has tilted against the ‘Big’ pharmaceutical sector with criticisms of rising drug prices. These comments are often read in the context of political critiques of Clinton herself though. Her critics say she is too close to the health insurance industry.
Clinton has certainly not been an outright foe of Wall Street. Citigroup, JPMorgan, Goldman and Morgan Stanley occupy four of the top 7 slots in the list of donors to Hillary Clinton’s political funds since 1999. That’s before toting up fees for well-publicized speeches hosted by megabanks, and other high-profile financial institutions.
These ties may have assuaged Wall St. concerns over a Clinton presidency to a degree. The health insurance sector has advanced strongly over the last three months, though it continues to underperform the wider US stock market this year.
As for Donald Trump, he is known to broadly disapprove of free trade agreements and this has placed industrial companies and other major exporters in the firing line.
With the controversial candidate making it clear he wants to repeal the Affordable Care Act (‘Obamacare’) and Clinton promising to build on it, health insurance stocks might well be one of the few clear equity market touchstones ahead of 8th November.
More broadly, US equity investors will also weigh the fact that here have been only 3 election years since 1928 when the S&P 500 index had a negative return.
Naturally, the stock market may offer any number of nail-biting moments in before the election itself.