For most of 2024, stock-market investors appeared unfazed by the prospect of either Donald Trump or Kamala Harris taking the White House. However, election jitters have finally begun to rattle equities, with less than two weeks to go before Election Day.
This week, a sharp climb in Treasury yields, driven by the surge since September, has shaken up the U.S. stock market. Concerns are mounting that the recent selloff might impact this year’s record-setting rally in the final lead-up to the election.
On Wednesday, U.S. stocks took a hit as the S&P 500 dropped 0.21%, and the Dow Jones Industrial Average fell 0.33%, each marking a nearly 1% decline. Both indexes experienced three consecutive days of losses, their largest three-day slide since early September. Meanwhile, the tech-heavy Nasdaq Composite slid 1.6%, its worst daily performance since Sept. 6, as per Dow Jones Market Data.
The selloff coincided with a surge in long-dated Treasury yields, reaching their highest point in nearly three months. Investors are concerned that the election might further swell the fiscal deficit. Additionally, the increased likelihood of a Trump presidency in the tight race, combined with expectations that the Federal Reserve might refrain from aggressive monetary easing in November, has weighed on market sentiment.
Traders are also wary of the inflationary implications of both Trump’s and Harris’s proposed policies. Trump’s plans, however, are expected to have a more pronounced inflationary impact, according to Brad Neuman, senior VP and director of market strategy at Fred Alger & Co., who shared these insights with MarketWatch.
Treasury yields, which have been climbing since the Fed began cutting rates in mid-September due to robust economic data, hadn’t unnerved the stock market until now. Despite this backdrop of political and rate uncertainty, the S&P 500 managed to close at a record high last Friday, marking its 47th record close in 2024. This capped a sixth consecutive week of gains, the longest winning streak since December, with the index on track for one of the best first ten months of an election year since 1936. The S&P is poised to end October, typically a volatile month in presidential election years, with gains, according to Dow Jones Market Data.
While the Cboe Volatility Index (VIX) — often called Wall Street’s “fear gauge” — has surged nearly 16% this month, it still hovers below the “high volatility” threshold of 20.
For much of October, stock prices shrugged off fluctuations in the bond market and the dollar. Jonathan Krinsky, chief market technician at BTIG, noted that investors were more focused on the pace of yield increases than their overall level, with stock markets showing complacency. Now, however, stocks appear to be absorbing both election and rate concerns. Krinsky suggests there’s “downside risk for stocks broadly” over the coming weeks, regardless of whether this selloff marks the start of pre-election anxiety. He also sees a strong likelihood that the S&P 500 could retreat to the 5,500–5,650 range in the near term. The index closed Wednesday at 5,797.42.
Aaron Clark, portfolio manager at GW&K Investment Management, told MarketWatch he doesn’t foresee a significant spike in volatility or major selloff before Election Day. He believes the extreme policy proposals from both candidates will likely moderate post-election. “Markets can’t predict which policies will be pursued or implemented,” he said, suggesting that a divided Congress would be the most favorable outcome for markets and the economy.
Clark explained that a split Congress would limit the likelihood of substantial economic policy shifts. While there may be minor adjustments in taxes, tariffs, or immigration policy, Clark doesn’t expect these to diverge significantly from the candidates’ current platforms.
As of Thursday morning, U.S. stock futures were mixed, with S&P 500 futures up 0.4%, Nasdaq 100 futures rising by 0.8%, and Dow futures down slightly by 0.1%, according to FactSet data.
