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S&P 500 Stares into Abyss as Equity Selloff Deepens Ahead of US Election

S&P 500 Stares into Abyss as Equity Selloff Deepens Ahead of US Election

2020-11-02 06:00:00
Dimitri Zabelin, Analyst
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2020 Election, Analysis, 2020 Polls, Biden-Trump Spread - Talking Points

  • 2020 US presidential election likely to amplify volatility in equity indices
  • Spike in Covid-19 cases, fiscal stimulus stalemate amplifying uncertainty
  • Brexit negotiations continue as EU,UK officials scramble to ratify a deal
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US Presidential Election

Election day will finally be here on November 3. Polls indicate former Vice President and Democratic nominee Joe Biden will take the White House. He is leading ahead of incumbent President Donald Trump by a little over his 7-point average that he’s maintained for several weeks. Mr. Biden is also outperforming Trump in many key swing states like Florida – but there’s a catch.

See our guides on elections and how to trade the impact of politics on financial markets!

As of last week, early voting reached over 50% of total US ballots cast in 2016. This comes on the heels of record mail-in ballots amid the coronavirus pandemic, with most coming from Democrats. The risk here comes from investors getting a false sense of certainty in terms of Mr. Biden’s chances. Since Republicans are more likely to vote in-person, support for Trump may surge on election day, potentially throwing investors off balance.

Covid-19 Spike

Chart showing Covid-19

Source: Johns Hopkins CSSE

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Leading up to the election and following the results, S&P 500 volatility will likely spike as result of the high-impact nature of this election. The index has already been facing heightened selling pressure amid a spike in Covid-19 cases and a stalemate in Congress over fiscal stimulus. Combined, these factors may rattle financial markets and amplify the uncertainty of what is already a fundamentally-precarious environment.

S&P 500 Downtrend to Accelerate? SPX – Daily Chart

Chart showing crude oil prices

Source: TradingView

Brexit Headache Continues

As I say in my webinar, Brexit is an absolute mess – but we are getting closer to the end of it. Policymakers will likely hold an emergency summit on November 15-16 to hammer out an agreement before the end of the transition period on December 31. Lawmakers continue to be divided over issues like fisheries and settling mechanisms, a point of content for both sides.

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Chart showing British Pound index

Source: Bloomberg

Increasing premonitions of a no-deal scenario, coupled with the surge in Covid-19 cases – and the strict lockdown measures that follow – could further deepen the UK’s economic contraction. Combined with the political shock of Brexit, these factors together make a strong case for British Pound volatility ahead. Oscillations may swing more to the downside giving the growing number of high-magnitude risks.

--- Written by Dimitri Zabelin, Currency Analyst for DailyFX.com

To contact Dimitri, use the comments section below or@ZabelinDimitrion Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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