Financial advisors can expect the markets to become increasingly volatile as midterm elections on Tuesday November 6 approach, market watchers said Wednesday.
Since the start of October, the S&P has reportedly declined 8.9 percent, the Dow has dropped 7.1 percent and the Nasdaq is down 11.7 percent as of the end of trading on Wednesday.
Panelists at an event in New York City attributed the volatility to rising interest rates and anxiety over whether Democrats or Republicans will dominate elections for the House and Senate.
Interestingly, an unscientific poll of Financial Advisor's readers found that they considered trade tensions with China and excessive equity valuation levels as the primary culprits behind the uptick in volatility in recent weeks. Peaking corporate profits ranked third and election prospects ranked last among their reasons for the downturn in stock prices during October.
“Investors have become nervous as you would expect,” said Wayne Wicker, chief investment officer of ICMA-RC, a non-profit financial services firm with $55 billion in assets under management and administration.
Wicker was among the speakers on a panel along with AllianceBernstein chief U.S. economist Eric Winograd about the possible impact of the midterm elections.
“The biggest possible impact on the economy is a Republican sweep, because there will be bigger tax cuts and bigger fiscal stimulus, which in the short term is more likely to be good for the market because the president prioritizes short-term growth,” Winograd told Financial Advisor. “Fiscal stimulus boosts you in the immediate future, but it also means slower growth in the distant future.”
The event at AllianceBernstein’s office included a discussion about a recent poll that showed that in 69 of the most contested House districts, 50 percent of voters support Democratic candidates and 47 percent support Republicans.
“Financial markets may react more negatively to a Democratic sweep, so there may be a tightening of financial conditions there if they dominate,” Winograd said.
However, some sectors are immune to politics, they said.