What investors are watching for the election – and what could go wrong

In this news, we discuss the What investors are watching for the election – and what could go wrong.

(Reuters) – The stakes are high for financial markets as Americans go to the polls on Tuesday in an American election that has already made history with a record number of early votes.

From potential major political changes to huge election night volatility and post-election swings, here’s what investors are watching on November 3 and beyond:

** Trading at night. Stocks have been tough heading into the election and the CBOE .VIX volatility index, Wall Street’s “fear gauge”, has risen in recent weeks. Traders will be glued to screens that will follow how US EScv1 futures react at every turn and trigger on election night, as well as TYv1 US Treasury futures and dollar = USD.

** US Treasury Bills. The $ 20 trillion U.S. Treasury market has been asleep for months but has recently shown signs of life as opposing bets on how the economy will fare in the face of election nervousness.

** Currencies. Election-induced volatility can boost the dollar in the short term, although many investors believe the currency should weaken in the longer term.

** How robust are the exchanges. Stock exchanges and retail brokers, under scrutiny after the recent blackouts, have spent months planning the US election. Now their preparations for what could be a very volatile trading time are about to be put to the test.

** Market Safeguards. Price limits and circuit breakers are safeguards intended to prevent a market from moving too far or too quickly over a period of time. Here’s how they would work if the markets collapsed after polling day.

** Liquidity is crunching. The big Wall Street banks have staged ‘war game’ exercises in their trading activities and prepared their clients for unexpected scenarios, in the hope of avoiding liquidity crises or technical errors as the markets react to the news.

** Credit score review. Some of the most influential observers of the electoral process will be the agencies that determine the country’s credit rating.

** Major policy changes. Investors could face dramatically different avenues for the country when it comes to taxes, government spending, trade, and regulation, depending on who wins.

** Actions to watch. Various stocks and sectors could experience dramatic swings, and investors have spent months trying to identify potential winners and losers.

** A bullish stock market. For those looking for bigger gains to come, a Trump victory may be a favored outcome by measure.

** If Biden wins, as polls suggest, his cabinet choices will be scrutinized by investors to gauge the impact of the new administration’s policies on markets.

** Large Tech. If Biden wins, tech companies could face higher tax rates and tax-motivated sales as well as increased regulation.

** Green funds. Fund managers are betting that green-type stocks with environmental, social and governance (ESG) credentials would benefit from a victory at Biden.

** Health actions. A victory for Biden and a possible Democratic takeover of the US Senate could pave the way for reforms in prescription drug prices and health care coverage, widely seen as potential drawbacks for companies in the industry.

** Retail investors, on the other hand, will be among those looking to profit from post-election volatility.

Compiled by Megan Davies and Ira Iosebashvili; Editing by Sonya Hepinstall and Dan Grebler

Original © Thomson Reuters

Originally posted 2020-11-03 21:26:10.

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