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S&P 500 Stares into Abyss as Equity Selloff Deepens Ahead of US Election

With two days to go until the US Presidential election, a shift in the stock market has given a key indication of who is going to win.

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Leading up to the election and following the results, S&P 500 volatility will likely spike as result of the high-impact nature of this election. The index has already been facing heightened selling pressure amid a spike in Covid-19 cases and a stalemate in Congress over fiscal stimulus. Combined, these factors may rattle financial markets and amplify the uncertainty of what is already a fundamentally-precarious environment.

The S&P 500 indicator has fallen 0.04 per cent in the period between July 31 and October 31. The result means that the market is forecasting the Democratic leader, Joe Biden, will win the election, beating current US President Donald Trump on Tuesday, according to CFRA Research’s Presidential Predictor.

The stock market has a reliable track record of predicting whether an incumbent is likely to be voted out. Since World War II, there’s an 88 per cent likelihood the President will be voted out when the S&P has fallen in the three months leading up to the Presidential election, according to CNN.

Conversely, when the S&P 500 sees a rise over the same period, the

President has been re-elected 82 per cent of the time.
Previously the stock market had favoured Mr Trump to win the election — but on Friday the S&P 500 fell 1.2 per cent. The fall sent stocks into negative percentage points and according to the analysis, gives a hair thin margin to Mr Biden.

“This year, the Predictor closed ever so slightly in the red during this three-month period, implying, but not guaranteeing, that Biden will emerge victorious,” Sam Stoval, the chief investment strategist from CFRA told CNN.

The S&P 500 is a stock market index that measures the stock performance of the 500 large publicly listed US companies.

The prediction matches other forecasts from Wall Street, including an analysis from Goldman Sachs which predicted a “blue wave” of support for Democrats, giving the Party control over the House of Representatives and the Senate.

Election day will finally be here on November 3. Polls indicate former Vice President and Democratic nominee Joe Biden will take the White House. He is leading ahead of incumbent President Donald Trump by a little over his 7-point average that he’s maintained for several weeks. Mr. Biden is also outperforming Trump in many key swing states like Florida – but there’s a catch.

As of last week, early voting reached over 50% of total US ballots cast in 2016. This comes on the heels of record mail-in ballots amid the coronavirus pandemic, with most coming from Democrats. The risk here comes from investors getting a false sense of certainty in terms of Mr. Biden’s chances. Since Republicans are more likely to vote in-person, support for Trump may surge on election day, potentially throwing investors off balance.

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