Election Risk Swells as Wall Street Warns on Tax Cut Reversal
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As equity investors struggle to divine how long the coronavirus will weigh on U.S. activity, there’s another risk arriving right on schedule: The 2020 presidential election.
Investors are pricing volatility on the S&P 500 Index at the six-month point higher than at the one-year mark. Typically, the curve is upward-sloping, but that’s been upended as traders buy protection that kicks in around election time.
“The kink at six months reflects not just the risk of a potential second wave of infections in the fall but also the upcoming U.S. election,” wrote Mandy Xu, the chief equity derivatives strategist at Credit Suisse. “We don’t see this pronounced kink in other global indices with both Euro Stoxx 50 and Nikkei 225 vol curves relatively flat in the first six months.”
SEE ALSO: Cboe Chief Flags ‘Unprecedented’ Early Hedging of U.S. Election
In addition, the October VIX futures contract — whose underlying options will encompass the early Nov. 3 vote at expiry — has seen its premium to both the September and November contracts trend higher over the past month. VIX futures are tied to the Cboe Volatility Index, a gauge of the 30-day implied volatility of the S&P 500 over the next 30 days.
19,710 in U.S.Most new cases today
-14% Change in MSCI World Index of global stocks since Wuhan lockdown, Jan. 23
-1.027 Change in U.S. treasury bond yield since Wuhan lockdown, Jan. 23
-4.8% Global GDP Tracker (annualized), April