There are two threats looming over stock market sentiment currently: a possible contested U.S. presidential election and the unabated surge in coronavirus infections. These two destabilizing situations do not bode well for market growth, with another period of high volatility to be expected as the market searches for direction.
Since, President-elect Joe Biden was projected to be the winner of the 2020 presidential election earlier this month, outgoing President Donald Trump's campaign has launched multiple legal challenges and has called for recounts in key swing states, claiming the projected outcome of the election came from fraudulent ballots.
These efforts by Trump and his election campaign have been criticized by Biden's campaign and other legal authorities for lacking substantive evidence of fraud. Even if the Trump campaign can prove that ballots were casted illegally, they would need to produce evidence that tens of thousands of ballots where improperly cast to erase Biden's led in any state.
The threat of Trump not conceding despite the election results is currently taking place during the largest coronavirus outbreak the nation has seen since the beginning of the pandemic. This week, Texas and California became the first states to surpass one million total infections, with the U.S. topping 150,000 new cases on Thursday, shattering previous records at an almost daily pace. Hospitalizations are also on the rise, forecasting a grim winter that is to come if these disturbing trends are allowed to continue unhindered.
Planning Ahead
If there's one word to describe 2020, that word would be unpredictably. Market volatility has surged to its highest levels since the Financial Crisis on 2008 in March as the coronavirus pandemic dramatically impacted the global economy. These levels of uncertainty have not gone away, with the market continuing to go through swings of gains and losses depending on the changing outlooks surrounding the pandemic.
Investors have sought to profit from the wild market swings that 2020 has brought through volatility exchange-traded funds which track the Chicago Board Option Exchange Market Volatility Index (VIX). VIX, known as the stock market's "Fear Index," represents the market's volatility expectations for the next 30 days, derived from the prices of S&P 500 Index
ETFs that track the VIX rise and fall alongside the index's movements, but at different rates depending on how they are constructed. Market participants usually hold these types of ETFs for short periods of time, betting on how long the high volatility period will last to profit from the uneasy trading conditions.
There are about five VIX-tracking ETFs, with three greatly outperforming the S&P 500 for their year-to-date: iPath S&P 500 Dynamic VIX ETN
