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The US stock market is preparing for a crappy week before the controversial US elections

NEW YORK (Reuters) – Wall Street is facing a serious preliminary day, with growing concerns about the outcome in Washington adding to the nerves of the coronavirus pandemic and fading chances of a stimulus.

The Cboe volatility index, Wall Street’s “measure of fear,” jumped to 32.46, its highest closing level since Sept. 3, while the S&P 500 had the biggest one-day decline, with investors reluctant to buy before the vote.

“What we are seeing today are the people preparing for election night: raising money to keep capital, locking up capital gains at a lower rate and having cash for the growing possibility of lower prices. “Said Robert Phipps, director of Per Stirling Capital Management in Austin, Texas.

Investors are betting on Democratic contender Joe Biden to win by buying shares of alternative energy and cannabis stocks that are expected to take advantage of his policy proposals. Bond yields have risen, in part in anticipation of a greater incentive for the Biden administration.

Some of these bets looked a little weaker on Monday. For example, Invesco Solar̵

7;s ETF fell 2.1% and bond yields fell.

Before Monday, investors seemed to be picking up election-related volatility again, in anticipation of a clear victory. However, as shares fell, VIX futures rose along with the volatility index.

Market observers are now worried that the unexpected victory of President Donald Trump, a Republican, or the uncertain election result could lead to a drastic dissolution of positions similar to what happened in 2016, when investors were positioned primarily as president of Hillary Clinton.

Biden still leads the national polls by 7.9 percentage points, although Trump has increased his position in the states of Georgia and Michigan, according to poll aggregator RealClearPolitics.

Trump’s surprise victory could lead to a post-election jump similar to the one in 2016 here, when a rally of drug manufacturers and financial companies helped reverse deep losses overnight and pushed the S&P 500 by more than 1%, beginning of jump at the end of the year.

JP Morgan analysts said Monday that the best stock result was Trump’s “orderly” victory, with the S&P 500 potentially catapulting to 3,900. A divided government could be net positive, they said, while the Democratic White House and Congress will be neutral with the potential for a greater incentive weighted by higher corporate taxes.

Signs of an imminent election usually lead to greater instability on election day, said King Lip, chief strategist at Baker Avenue Asset Management in San Francisco.

“Polls seem to be shrinking … and what it’s causing is just more uncertainty,” he said.

Overall, the S&P 500 has grown by about 5% for the year so far and remains by about 5% below its record level since the beginning of September. Since then, the much-anticipated tax incentive bill in Washington has stalled and the United States has published its highest new coronavirus cases.

Monday’s deep stock market slumps were “related to a lack of stimulus package and fears of the upcoming election,” said Tim Grisky, chief investment strategist at the Inverness Council in New York. “There is nervousness on both issues.”

Additional reporting by Stephen Culp; writing and additional reports by David Randall; editing by Megan Davis and David Gregorio

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