U.S. Elections Drive Index Volatility

CFD index trading was volatile in the days leading up to the U.S. Presidential election. There were many side stories that drove volatility but none as important as the encroachment of the FBI into U.S. politics.  11-days before the election the FBI for the first time in its history made an announcement that there were additional emails that could be linked to the Clinton server investigation.  Two-days before the election, the FBI attempted to back out of its unenvious potions by saying it had not found anything new and its position in July, that there was no case ,was the same position it now retains.

Volatility as reflected by the fear gauge soared slightly more than 40% in the week ahead of the election.  The VIX volatility index is an index reported by the Chicago Board of Options Exchange, that reflects the implied volatility on the “at the money” strike prices for the S&P 500 index.  The higher the index, the more it cost traders to purchase options.  So, investors who are looking to hedge their portfolios before the election are paying more for downside protection.

During the week before the election the S&P 500 index and CFD’s on U.S. indices moved lower with the S&P 500 index declining for 9-straight trading session something that had not occurred since 1980. Although the declines over the past week were not substantial, with the large cap index falling just shy of 2%, negative momentum started to accelerate.

In the wake of the comments by the FBI that there was no new evidence against Secretary Clinton, riskier assets soared, driving stock prices higher and recapturing a good portion of the losses seen over the prior week.  Healthcare stocks as well as technology shares were the losers led down by Apple and Facebook shares. Apple is a proxy for the U.S. markets and the decline of the large cap technology index following its earnings release weighed on the broader markets.  Facebook shares also tumbled following earnings declining nearly 6%, as guidance was softer than expected.

Healthcare has been decimated mainly because many believe that a Clinton victory would be detrimental for many healthcare companies.  The secretary has been quoted that she is angered by the run up in prices for many drugs, and will crack down on those who are looking to increase the cost to working Americans. The sector has been hammered as many healthcare companies have had poor profits due to inclusion in the affordable care act.  This has drained profits and as the insured are expected to register in November, they are finding fewer choices as many healthcare companies have dropped out of Obamacare.

Shares and CFD’s in indices are likely to experience robust volatility following the Presidential election no matter who wins, but a Trump victory is the unknown and could serve as the backdrop for reduced trade and slower growth driving the U.S. stock market into a correction.  If U.S. stocks fall, the spillover could be fierce generating issues for Europe and Asia.

image: Reuters

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