The market's pre-election freak out isn't that unusual

Markets are getting a little jittery around the election.

The VIX, a measure of volatility in the stock market, has been heading higher in the weeks leading up to the presidential election.

This year appears to be no different than previous elections as the market has seen increased volatility with an incumbent leaving office, according to a note from Lori Calvasina, chief US equity strategist at Credit Suisse.

Calvasina found that in each election in which an eight-year president had to vacate the office — 1992, 2000, and 2008 — the VIX typically jumps. While the last three incumbent elections — 1996, 2004, and 2012 — the VIX has been fairly muted.

It appears the pattern has held, with the VIX increasing from 11.66 to 18.21 over the past three months. The index also topped out at 22.1 at Friday’s close.

This has been an unusual year with alternating periods of heightened uncertainty and incredibly staid markets otherwise. The election, however, appears to have caused increased volatility just as Brexit and the January sell off did earlier this year.

The market sell-off following FBI director James Comey’s letter to Congress saying the agency re-opened its investigation into Clinton’s emails seems to have been the source of the recent surprise. Additionally, Comey’s subsequent letter saying the FBI had closed the investigation and would bring no charges has settled markets and lowered the VIX a bit.

Of interest, Calvasina noted that each of the times the VIX has spiked in her analysis, the party of the president taking power has been different from the incumbent.

There are a few complications here, however.

For one thing, the sample size is very small. For another, there is noise in drawing direct correlations due to the fact that the past elections has significant macroeconomic events that roiled markets.

“In 1992, George HW Bush’s unpopularity on the economy alongside Ross Perot’s October 1st re-entrance into the Presidential race likely contributed to heightened political uncertainty and risk,” said the note from Credit Suisse.

“In the fall of 2000, the US economy was tipping into recession following the bursting of the Tech bubble. 2008’s dramatic spike in the VIX was likely precipitated by the bankruptcy of Lehman Brothers and related Financial Crisis events.”

Additionally, it’s unclear if the increase in the VIX was due to a party transition or simply a different person occupying the Oval Office regardless of party since there is no instance of the latter occurring to compare it to.

In any event, presidential races are typically volatile and this year is no different.

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