Do You Talk About Money?
Financial Market Pre-Election Jitters: Key Insights for Investors
Financial Markets Reflect Election Anxiety
Financial markets appear to have pre-election jitters. The United States election is less than two weeks away. The candidates are neck and neck. The outcome remains uncertain. And expectations for volatility have been rising, with the CBOE Volatility Index (VIX) finishing last week at 20.33.
Understanding the Significance of VIX Levels
“When the VIX goes north of 20, Wall Street pays attention because that level signals heightened volatility,” reported Connor Smith of Barron’s.
Political Influence on Market Volatility
One reason for heightened volatility may be concerns about the election. Ian Salisbury of Barron’s explained, “There are plenty of theories about how particular stocks will fare, depending on next month’s outcome. It isn’t hard to see why. The candidates have tried to curry favor with voters by championing or attacking favored industries, and sometimes individual companies. Vice President Harris has promised to raise the corporate tax rate, a move that could cut into corporate earnings, and Democrats are widely seen as tougher on antitrust issues, a potential hurdle for Wall Street banks looking to capitalize on pent-up [merger and acquisition] activity. Trump, meanwhile, has threatened hefty new tariffs, which could help U.S. manufacturers but hurt multinationals. He’s even threatened individual companies like John Deere over plans to move manufacturing facilities abroad. The good news? Investors can mostly shrug the campaign rhetoric off and focus on stocks’ fundamentals.”
Market Sentiment: Investor Reactions to Volatility
Third-Quarter Earnings: Resilience Amidst Uncertainty
So far, third-quarter earnings reports have been strong. Regardless, stock market investors became significantly less bullish last week, according to the AAII Investor Sentiment Survey. The survey asked investors whether they think the stock market will move higher (bullish) or lower (bearish) over the next six months.
- Bullish sentiment declined from 45.5 percent the week of October 16 to 37.7 percent last week. (The historic average for bullishness is 37.5 percent.)
- Bearish sentiment increased from 25.4 percent to 29.9 percent. (The historic average for bearishness is 31 percent).
- Neutral sentiment also increased from 29.2 percent to 32.4 percent. (The historic average is 31.5 percent.)
Bond Market Movements in the Pre-Election Environment
Bond Yield Trends and Federal Reserve Decisions
Bond investors also have been adjusting their expectations. Since mid-October, the yield on the benchmark 10-year U.S. Treasury note has trended higher. At the start of the month, the 10-year note yielded 3.74 percent. Last week, its yield rose from 4.07 percent to 4.23 percent.
Factors Driving Bond Yield Increase
“The rise is likely a reflection of the fact the Federal Reserve will cut interest rates fewer times than investors had thought after September’s Federal Open Market Committee meeting, a result of inflation being above its target and a job market that has grown faster than expected. Also, Donald Trump’s chances of winning the presidential election have risen in the past few months, according to RealClearPolitics. His policies include fiscal spending and tariffs, both of which create inflation and throw cold water on the idea that the Fed will cut rates many times. While the economy could continue to grow, tariffs, for their part, not only lift prices, they destroy demand,” reported Jacob Sonenshine of Barron’s.
Election Day Advice for Investors
Avoid the Pitfalls of Election-Based Investing
Ben Levisohn of Barron’s offered some advice to anyone getting swept up in pre-election jitters. “The truth of the matter is that reading the financial market tea leaves is far from straightforward…In fact, investing with your politics is one of the worst ways to lose money—or miss out on gains.”
Portfolio Strategy Amidst Volatility
If you have concerns about market volatility or the possible effect of the election on your portfolio, get in touch. We’re happy to talk with you about your concerns and your portfolio.
Weekly Market Performance Overview
Last week, the S&P 500 Index and Dow Jones Industrial Average moved lower, while the Nasdaq notched a seventh week of gains. Yields on longer maturities of U.S. Treasuries moved higher over the week.
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance; MarketWatch; djindexes.com; U.S. Treasury; London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.
Do You Talk About Money?
Financial Conversations and Upcoming Events in November
A lot of important events and holidays are coming up in November. There’s Election Day, National Calzone Day, No-Shave November, the International Day for Tolerance and Talk Money Day.
That’s right! On November 8, everyone is encouraged to put their fears aside and begin talking with other people—spouses, partners, roommates, friends, adult children, and younger children—about money. It’s not going to be easy—money talk is tough for many people.
Benefits of Financial Conversations
Sixty-two percent of Americans who participated in a 2023 survey said they did not talk about money. Those who did have financial conversations generally conversed with a spouse or partner, reported Kamaron McNair of CNBC.
There are many reasons people avoid financial conversations. They may:
- Believe it is impolite to talk about money.
- Worry that discussions will be awkward.
- Fear being judged for their choices.
- Think their money is no one else’s business.
The issue is less prevalent among younger people than it is among older people, according to CNBC. “…56 [percent] of millennials and 49 [percent] of Gen Zers say they’re having financial conversations on the regular, compared with just 38 [percent] of Gen Xers and 22 [percent] of baby boomers…Talking about money can help young people increase their financial literacy as they learn from and teach their friends. But it’s equally important for younger people to bring up financial topics with their elders—or at least their more experienced peers—especially when it comes to making big decisions,” reported McNair.
Breaking the Taboo on Money Talks
While breaking down the money-talk barrier may be challenging, the rewards can be significant. Financial discussions can improve decision-making, strengthen relationships, and help children develop sound money habits. Our goal is to help the people we serve make financial decisions that help them live the lives they want to lead. If talking about money is a difficult hurdle, get in touch. We can help facilitate these important discussions.
Weekly Inspiration
“The single biggest problem in communication is the illusion that it has taken place.”
—George Bernard Shaw, Nobel Prize-winning playwright
Best Regards,
California Retirement Advisors