Stock Market Wanes as Traders Monitor US Presidential Race and French Elections

Stock market volatility continues as traders react to US presidential race and French elections

As the third quarter comes to a close, the stock market experienced fluctuations as traders closely monitored developments in the US presidential race and remained cautious ahead of Sunday’s elections in France.

Following the recent debate between Joe Biden and Donald Trump, traders are repositioning themselves based on the perceived outcomes. Biden’s shaky performance has boosted sentiment around Trump’s chances for a second term, leading to rallies in sectors such as private prisons, oil, and health insurance. Conversely, renewable energy and pot stocks saw declines. The Treasury curve also steepened in response to the debate.

“A very bad night for Biden,” said Libby Cantrill at Pacific Investment Management Co. “For markets, the biggest takeaway from last night is that deficits will remain high and tariffs are likely going up, especially if Trump gets elected. The question is when this will be priced into markets.”

Despite an initial gain, the S&P 500 fell towards the end of the day, reflecting the uncertainty in the market. Long-term Treasuries underperformed shorter maturities, while the dollar edged lower after a six-week streak of gains.

In a late development, major US banks announced higher payouts to investors after passing the Fed’s stress test. The upcoming US presidential election and its potential impact on the market have analysts predicting significant swings in the second half of the year.

Goldman Sachs Group Inc.’s Scott Rubner advised caution post-July 4th, anticipating market volatility. Meanwhile, Andrew Brenner at NatAlliance Securities highlighted the potential impact of a Trump victory on the bond market, predicting a “massive steepening” in response.

Barclays Plc strategists recommended buying inflation hedges in the US Treasury market following the debate, as Trump’s performance increased the likelihood of his re-election. JPMorgan Chase & Co.’s Marko Kolanovic, however, warned of headwinds facing the market in the coming months, projecting a significant drop in the S&P 500 by year-end.

Despite the uncertainties, historical trends suggest that a strong first half of the year could lead to above-average returns in the second half. While challenges remain, analysts are closely watching economic data and Fed policy decisions for clues on the market’s direction in the coming months.