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Market volatility is about to swell after Election Day, Wells Fargo warns

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September’s early volatility could also be no match for what comes after the presidential election.

Wells Fargo Securities’ Michael Schumacher notes volatility is about to leap following the outcomes — not recede.

“Usually, you may assume that it is Election Day or Election Day plus one that’s tremendous unstable,” the agency’s head of macro technique informed CNBC’s “Buying and selling Nation” on Tuesday. “However this 12 months, markets are saying ‘Hey, wait a minute. We see plenty of vol after the election.”

Schumacher is taking his cue from the choices market.

“The massive takeaway is three month choices vol remains to be fairly excessive, and it has probably not come down versus the 2,” he stated. “Why is that? Possibly it is a messy outcome. Possibly the outcomes aren’t even clear for a couple of weeks. Possibly Brexit will get onto the scene, as properly.”

He warns the wild swings will not simply have an effect on the inventory market.

Schumacher contends the uncertainty may push traders deeper into Treasurys as a safer haven.

In line with Schumacher, it may drag the benchmark 10-year Treasury Observe yield beneath 0.40%. It hasn’t been that low since early March. On Tuesday, it closed at 0.68%.

But, Schumacher is sticking by his 10-year yield year-end goal of 0.90%.

“It feels like a very large transfer. However in the event you think about it within the context of issues that would transpire within the subsequent couple of months, I would say it isn’t that large,” he famous. “Take into consideration what the market did after Donald Trump was elected in 2016. The 10-year yield went up 60-something foundation factors in a few month.”

Regardless of his volatility forecast, Schumacher doesn’t checklist the election as the key threat to the markets. His greatest fear remains to be the pandemic.

“It is Covid primary, election quantity two, and the Fed in all probability quantity three,” Schumacher stated. “If there is a important change within the development of that illness, we expect that would make yields go fairly a bit in both course, frankly.”

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