US markets are bracing for a shaky run-up to Election Day on 3 November, with fears of an unfavourable outcome in Washington compounding already existing fears of the COVID-19 pandemic and the halting of negotiations over further economic stimulus.
Stocks fell sharply on Monday on the back of two record days for recorded coronavirus cases in the US. The S&P 500 fell a full 1.9%, while the Dow Jones Industrial Average and Nasdaq slumped 2.3% and 1.6% respectively. Overall, the markets experienced their worst day in a month.
Signs of caution were also seen elsewhere as Treasury yields pulled back from last week’s high and remained steady at 0.8% through to Tuesday. The Cboe Volatility Index, often referred to as the market’s “fear gauge”, rose to 32.46, the highest closing level seen since 3 September.
Worries were further compounded by news that the Senate would adjourn from Monday until 9 November, effectively ending hopes of passing a COVID-19 stimulus package before the election.
At the moment, investors appear to be banking on a victory for Joe Biden, with many buying stocks in cannabis and alternative energy on the expectation that they will benefit from his proposed policies. Bond yields have also climbed, in part due to expectations of greater stimulus under a Biden presidency.
However, these options slid somewhat on Monday, with bond yields dipping and the Invesco Solar ETF falling 2.1%.
Tim Ghriskey, chief investment strategist at Inverness Counsel, said that the precipitous drop in the stock market on Monday was “to do with the lack of a stimulus package and concerns about the pending election”. “There’s nervousness on both those issues,” he noted.