Market volatility expected to continue in the week ahead with Presidential debate and jobs report
Stock market volatility, with sharp ups, downs and reversals, is likely to be the norm again in the week ahead, as investors await Friday’s jobs report and watch headlines from Washington and the presidential debate.
Expectations remain low for a stimulus package from Congress, but as economists downgrade their view of fourth quarter growth because of a lack of further federal virus aid, investors are again looking for some guidance from Washington. The election is likely to be a market focus in the week ahead, as the first presidential debate takes place between President Donald Trump and former vice president Joe Biden Tuesday night.
Election watch
Michael Schumacher, director of rate strategy at Wells Fargo, said the debate may have more potential to move the market than the jobs report. “Most people talk about these things and get all fired up and nothing happens, but this is such a weird year... This seems like the first big shot to see these guy in action. We think it’s a big event,” he said.
Schumacher said if Trump is perceived to win, and his chances rise in prediction markets by several points, there could be a positive move in risk markets and the bond market could sell off, sending yields higher. Trump is perceived as better for stocks and the economy, and Biden is expected to push for higher taxes and more regulation, he said.
“We think that pushes the 10-year yield up to 75 or 80 basis points,” he said. The 10-year has been locked in a range below 0.70% and was at 0.65% Friday.
“If Biden wins, then the debate is risk off. Then Trump’s chances of winning probably go to 40%, maybe lower. Then the 10-year yield goes to 0.60%,” he said.
The market was also expected to be volatile in the coming week because of month-end and quarter-end rebalancing, but Schumacher said the stock market sell-off has taken some of the pressure off of the need to realign portfolios and he expects about $9 billion to move into bonds for rebalancing.
Before the earnings period starts in the second week of October, the market is likely to continue to focus on what’s worrying it.
Reference: CNBC
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