McCreadie adds that his firm’s funds use an anti-beta hedging strategy to provide different returns in moments like these. He sees value there given the potential for an election that sees contested results and possible recounts, much like the Bush-Gore election of 2000.
Despite the likelihood of post-volatility election, there has been a notable lack of election-driven volatility going into the election, at least since Kamala Harris entered the race. McCreadie says that is more likely a result of investors watching betting markets rather than polls. Betting markets have a much higher likelihood of a Trump victory priced in.
As investors price in a Trump victory, McCreadie believes they are also pricing in the prospect of a similar rally to his victory in 2016. While markets sold off overnight, they rallied in the morning as investors saw a sweep by a very pro-business party. Today, however, the US economy is in a slowdown and the US stock market is very expensive.
McCreadie believes the market is looking at the wrong analogy in its positioning right now. Given the high valuations in US stocks and the already ongoing slowdown in corporate earnings and GDP growth, he agrees that any onset of volatility could result in a drawdown. The longer the uncertainty lasts, the bigger the drawdown will be.
Another source of volatility may be the Trump campaign’s apparent readiness to contest the results of the election. Given Trump’s own legal liabilities should he fail to win, McCreadie says he’s likely going to call the election ‘rigged’ in almost any outcome. The tighter the election results are, though, the more impact those cries will have on markets.
