Election Risk Swells as Wall Street Warns on Tax Cut Reversal
- Six-month S&P 500 volatility, VIX kink show election in focus
- Goldman: 2021 EPS $19 lower if 2018 corporate tax cut reversed
A sign informs voters about social distancing outside a polling station in Milwaukee.
Photographer: Thomas Werner/BloombergAs equity investors struggle to divine how long the coronavirus will weigh on U.S. activity, there’s another risk arriving right on schedule: The 2020 presidential election.
Investors are pricing volatility on the S&P 500 Index at the six-month point higher than at the one-year mark. Typically, the curve is upward-sloping, but that’s been upended as traders buy protection that kicks in around election time.
“The kink at six months reflects not just the risk of a potential second wave of infections in the fall but also the upcoming U.S. election,” wrote Mandy Xu, the chief equity derivatives strategist at Credit Suisse. “We don’t see this pronounced kink in other global indices with both Euro Stoxx 50 and Nikkei 225 vol curves relatively flat in the first six months.”