Investors on Wall Street have a playbook for trading the markets around Election Day.
Markets hate uncertainty, the adage goes, and the stock market typically dips in the month before the vote — in October, the S&P 500 index fell about 1 percent — before rallying once the result of the vote is known.
That’s why many on Wall Street expect stocks to gain on Wednesday, provided that there is a clear winner. But given the closeness of the race, and the possibility of an uncertain or contested result, there is still the possibility of turmoil. (That is one explanation for the recent jump in the price of gold, which is considered a haven in times of trouble.)
Even so, a potential spike in short-term volatility for stocks would eventually be eclipsed by long-term gains linked to underlying economic trends, said Seema Shah, chief global strategist at Principal Asset Management. The S&P 500 gained about 57 percent under President Donald J. Trump, measured from Election Day to Election Day, and about 70 percent under President Biden.
In the end, “the market absorbs these events,” said Quincy Krosby, chief global strategist at LPL Financial. “There’s always an understanding that this, too, shall pass, because it always has.”
But beyond this broad bet on the market’s momentum, investors often say it is tricky to make stock bets tied to presidential policy, because it is hard to predict what will pass through Congress and how policies will ultimately affect companies and markets. In addition, the recent wobble in stocks appeared linked to the earnings at the big technology companies that dominate market indexes, highlighting the influence of factors beyond the election.
Investors have turned to bonds, perhaps even more than stocks, as a way to bet on the outcome of this election.
Mr. Trump and Vice President Kamala Harris have both proposed policies that would require more borrowing when the government is already borrowing a lot. That may require higher interest rates to encourage investors to keep lending.
Each candidate’s policies are also seen as stimulating growth at a time when the economy is already growing at a healthy pace, potentially pushing interest rates higher in the future if the economy starts to overheat.
The 10-year U.S. Treasury yield, which is used as a benchmark for mortgages, business loans and a wide variety of debt around the world, has gained about half a percentage point since the start of October, a large move in that market. The average rate on a 30-year mortgage, which had drifted down toward 6 percent in September, shot up in recent weeks to more than 6.7 percent.
Higher U.S. yields have made the dollar more attractive to investors. An index measuring the value of the dollar against several other major currencies gained more than 3 percent last month. The dollar has strengthened in particular against the Mexican peso, reflecting expectations that a rise in protectionism would hurt the U.S. trading partner.
Some attribute the move in rates and currencies to expectations of Mr. Trump’s winning back the White House, since forecasters estimate that his policies on taxes and spending would create a larger fiscal hole than his rival’s would.
It is hard, however, to untangle these moves from signs that the economy remains robust, bolstered by mostly solid quarterly profits reported by companies. Federal Reserve officials began lowering the short-term interest rates they control in September, and they are expected to cut rates again when they meet on Thursday, providing another tailwind for the economy.
Long-term borrowing costs have risen even as the Fed has lowered its rates, a pattern many market watchers expect to continue, whoever wins the election.
“Regardless of the outcome,” said James Stanley, a senior strategist at the brokerage StoneX, “the government is probably going to end up spending more money.”
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