Market volatility to rise into election: Evercore

Investing.com -- Market volatility is likely to rise ahead of and may persist beyond the upcoming US election, Evercore ISI strategists said.

“A rise in volatility, already occurring and similar to 2016’s and 2020’s run-up, remains base case,” they wrote in a Sunday note.

The current odds favor a win by former President Donald Trump, with Evercore's client flash poll showing a swing toward 55/45 in his favor.

Evercore notes that a "contested result” in the election could "sour sentiment," causing a further selloff in markets if uncertainty lingers.

In contrast, a "clean" and undisputed outcome is more likely to trigger a positive reaction, potentially leading to what Evercore describes as a year-end “meltup.” This optimism is fueled by factors such as the Federal Reserve's expected rate cuts, controlled inflation risks, solid economic growth, and a surge in AI adoption.

Under these conditions, Evercore maintains its target for the S&P 500 to reach 6,000 by year-end.

2024 has followed the historical pattern seen in previous election years where Congressional control is closely contested. In these years, it is typical for the S&P 500 to experience double-digit percentage movements, either up or down, according to Evercore.

“Year-to-date gains are all the more extraordinary, given that uncertainty on the Election has seen a change in candidates, assassination attempts and the fourth largest volatility spike ever,” the note states.

Sector-wise, Evercore highlights several scenarios for how markets could respond to different election outcomes.

In a Trump victory, sectors like Financials, Oil & Gas, and potentially Defense could benefit, while the opposite outcome—a victory by Kamala Harris—would see a boost for renewables and health insurers tied to Medicaid.

Moreover, the investment bank expects a long-term bullish trend for sectors like Technology, particularly software, and Small Caps, as they are likely to outperform in a lower-rate environment.

Source: Investing.com