NEW YORK: A US stock market that has weathered trade wars, weak corporate earnings, and now a US-Iran conflict to continually hit record highs faces a new obstacle: The 2020 US election season.
Investors are bracing for more volatility as soon as early February when Democratic voters in Iowa and New Hampshire launched the primary season. Clues about which candidates will have momentum heading into next month will emerge on Tuesday, when the Democratic Party holds its next presidential debate.
Stocks could retreat if a progressive candidate scores a few early victories or if seemingly more market-friendly moderates, such as former Vice President Joe Biden, fail to register much support.
The market may face political uncertainty for months if it takes a long time to select the Democratic candidate, who would then face a hard-fought race against President Donald Trump before the November election.
“Investors could potentially sit on the sidelines waiting for more clarity around the election,” said Michael Arone, chief investment strategist at State Street Global Advisors in Boston.
“It wouldn’t surprise me, especially coming off what has been a very solid year in markets, for investors to kind of take a wait-and-see approach,” Arone added.
After gaining about 29 per cent in 2019, the benchmark S&P 500 has kept pushing higher, minting fresh record highs on Thursday, as US-Iran tensions appeared to have abated for now. Some investors still believe Wall Street is ripe for a pullback.
“The domestic calendar for the primary season is going to be a source of volatility,” said Alicia Levine, chief strategist at BNY Mellon Investment Management.
“I think the market will use it as an excuse to come in a little bit and take some heat out of the market and take some of the froth out of the market, depending on some of these outcomes.”
Levine called the elections a “sleeper issue” because stocks are pricing in a market-friendly outcome.
Investors said they are weighing scenarios that would be relatively favourable for stocks overall. These include Trump’s re-election and victory by a seemingly moderate Democratic candidate such as Biden or former New York City Mayor Michael Bloomberg.