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Calm Before the Storm?

By: James Picerno, Director of Analytics

The markets continue to churn but most of the major asset classes continue to go nowhere fast. Surprising? Not really. With the US election less than a month away the markets seem to be holding their collective breath and ponder what may lie in wait on the other side. That starts with the obvious: Who will be president? A worthy question, but that’s just the opening bid.

Perhaps the bigger and immediate uncertainty lurking: How will the election results be processed? In a normal election year, the Electoral College votes would be tallied and the results dispensed in due course. End of story. But this isn’t a normal election year by any stretch of the imagination.

The possible scenarios run the gamut this season and several are more than slightly plausible, including a contested election in which neither side backs down and instead sends its army of legal warriors into the fray to litigate an outcome, perhaps state by contested state, at some unknown date.

Another path that’s getting more attention from analysts: A stalemate in the Electoral College results for one reason or another and the process is thrown to the House of Representatives. In that case, the decision-making could get murky fast, courtesy of the Constitution’s vague outline on such matters. In this scenario, the potential for events spinning out of control are more than trivial. For some context, brush up on the 1876 election, which, to put it mildly, was a mess.

Exactly what’s on top for Nov. 3 and beyond is anyone’s guess. The markets seem to be going into hibernation until there’s a reason to reprice risk, political or otherwise.

The poster child for staying put these days is the 10-year Treasury yield, which continues to hold in a relatively tight trading range. At the close of today’s session (Oct. 14), the benchmark 10-year rate ticked down to 0.73%, or roughly the average rate relative to the upper and lower bounds of recent months.


In the current climate it’s risky to assume that calm will prevail for long, but for the moment we’re enjoying the respite.

(An earlier version of this article first appeared in The ETF Portfolio Strategist on October 14, 2020.)

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