Investment strategist Peter Repetto from iCapital shared insights with Quartz on potential stock market changes ahead of the presidential election.
Potential for Increased Volatility
Repetto discussed recent polling, which shows a tight race between Donald Trump and Kamala Harris. He predicts that this could lead to a rise in market volatility. Historically, the VIX index, which measures market volatility, tends to increase by about 10 points from early August to the end of October, tapering off as Election Day approaches.
“We expect volatility to likely increase as we head into the presidential election,” Repetto stated. “If we look back at the 2020 election, there was an 11-point rise in the VIX during the last two weeks of October, leading up to the election.”
Repetto cautioned that if this election results in prolonged uncertainty, volatility might remain elevated for some time.
Market Concerns and Risks
When asked about the relationship between the VIX index and market downturns, Repetto acknowledged that increased volatility could signal market declines. He referred to a recent report from iCapital, which suggests that October might be a bumpy month for stocks.
“The markets are currently concerned about potential tax increases under Harris and tariff increases under Trump,” he explained. “These factors could negatively impact earnings expectations and economic growth.”
Despite these concerns, Repetto highlighted that historically, the S&P 500 tends to perform well in the year following an election, regardless of which party wins. The median return is around 16%. Therefore, he advised investors to remain patient during periods of volatility or consider adding to their investments.
Post-Election Outlook
Regarding the VIX and its behavior after the election, Repetto suggested that it might decrease. He explained that historical trends show volatility often declines once the election is over.
“Once we get past the election, markets generally have more certainty about the next four years,” he said. “This allows for a clearer reflection of economic growth and earnings expectations.”
Repetto concluded that as the election outcome becomes clearer, volatility is likely to decrease, returning to more typical levels seen throughout the year.
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