The stock market has been boring recently.
Very, very boring.
But Julian Emanuel, a strategist at UBS, doesn’t think this is going to last.
In a note to clients published Friday, Emanuel writes that while the VIX — which measures stock market volatility and is commonly known as the “fear index” — has collapsed to new lows in recent weeks, this reading, “insufficiently discounts uncertainty in the form of political risk in the US and in Europe and that is not likely to dissipate meaningfully prior to the US elections on November 8.”
Emanuel includes the following chart, which has been a feature of his notes in recent months, that shows markets entering a new era of heightened volatility — despite periodic lulls — consistent with what we’ve seen over the last 25 or so years of investing history.
But what’s most notable about Emanuel’s call is that in the wake of the post-Brexit snap-back and ensuing calm in markets, perhaps investors have overlooked the looming US election.
Every US presidential election is a market event. But the outcomes this time — between a somewhat-known-quantity Clinton administration, and a far less certain Trump administration — are as widely distributed as we’ve seen in modern times.
For markets, this simply means the end of volatile markets has been overstated.
Or as Emanuel writes, “given the prospects for a contentious US presidential race where the outcome may not be certain until the day of the vote… along with uncertainty about the economic future of the UK and the EU persisting, talk of volatility’s demise may be greatly exaggerated.”
And while market participants and commentators tend to be focused on what is happening here and now, and far less interested in what someone says seems likely to happen in the future, Emanuel is not the only person saying markets seem to be overlooking the election.
At the Democratic National Convention on Thursday, my colleague Josh Barro spoke with economist Austan Goolsbee, a former member of the Obama administration, who said markets haven’t really reacted to what now appears to be a true 50-50 election between Hillary Clinton and Donald Trump.
And this sets the table for more chaotic moves as we inch closer to the actual day.
You can see the full video of Josh’s conversation with Goolsbee below.