Investors brace for months of big market swings as virus, political worries loom

September 21, 2020

By April Joyner

NEW YORK (Reuters) – Investors are bracing for an extended period of market volatility, as worries over a potential resurgence in coronavirus cases and political uncertainty roil stocks.

The Cboe Volatility Index, known as “Wall Street’s fear gauge,” hit its highest level in nearly two weeks as concerns over waning fiscal stimulus and the long-term economic consequences of the coronavirus pandemic took the S&P 500 down to a seven-week low on Monday.

Market participants aren’t expecting the turbulence to die down any time soon.

VIX futures show that investors are betting that market swings will persist beyond the Nov. 3 U.S. presidential election and into December, reflecting worries over the possibility of a contested election and concerns that a deeply divided government will fail to agree on providing more fiscal stimulus to support the U.S. economy.

“It’s not just Election Day that matters to this market,” said Stacey Gilbert, portfolio manager for derivatives at Glenmede Investment Management. “It’s also ‘do we get fiscal stimulus or do we not?'”

Those concerns, some investors say, have been sharpened by the death of Supreme Court Justice Ruth Bader Ginsburg, which observers expect to deepen partisan divides as it sets up what promises to be a fierce fight in the U.S. Senate over President Donald Trump’s eventual nominee to replace her.

“It appears that Democrats’ willingness to compromise with their Republican colleagues on stimulus will likely be as low as possible,” said Michael Purves, chief executive of Tallbacken Capital Advisors, in a note to clients.

Federal Reserve Chair Jerome Powell, among others, has stated that the U.S. economic recovery requires additional fiscal support. Such measures have been built into many economic and market forecasts for next year, and its continued absence could lead to further pullbacks in U.S. equities, some investors say.

Wall Street’s main indexes have fallen in the past three weeks as investors dumped big-name technology-related stocks following a stunning rally that returned the S&P 500 and the Nasdaq to record highs.

(Reporting by April Joyner; Editing by Ira Iosebashvili and Aurora Ellis)