The Election Has Passed, Let's Move Forward

For several weeks we have talked endlessly about the big premium in volatility around the fall months. This could have been directly tied to the election and the potential uncertainty around the event. Well, now the election is over and we know the next Presidential election won't be for another four years.  

 

We mentioned the heavy 'lead time' of volatility premium built into the VIX futures, and how that those bets were not likely to pay off. That was indeed the case. Volatility came crashing down last week as markets rallied sharply. There is a strong force connecting markets with volatility, an inverse relationship that could explode with a sharp move by one of the variables.

 

In this case, volatility sharply declining led markets to rally after one of the worst weeks (end of October) since the start of Spring. Simply put, the market has now moved past the election and is looking ahead to the final couple of months to the year and what might be in store for 2021.

 

The stock market really does not care about political parties and is now considering economic data, which after this past week is looking rather positive. Chair Powell has reiterated the Federal Reserve's strong pledge for accommodating markets for the foreseeable future, which seems to mean years rather than months, something that may have some very concerned. Gold rallied sharply last week, hence an eye on the inflationary fans of an over-generous Fed providing too much liquidity.  

 

Those concerns have been heard over and over for months, and so far they haven't been much more than smoke. Regardless, there are plenty more pressing issues to consider, and the election is no longer one of them. It's time for the market to move forward.