Market volatility can be driven by varying surprises as well as a number of uncertainties. This is evident in the US Presidential election cycle and its impact on the economically sensitive US small-cap asset class.
Global index provider FTSE Russell and Cboe Global Markets® examined historic and recent US election trends through the lens of US small-cap equities to illustrate.
For historical context, FTSE Russell charted US small- and large-cap equity index volatility in recent elections. The year 2016 was marked by a spike on election night due to an unexpected victory by Donald Trump followed by a relatively calm aftermath. The 2000 election, in which George Bush defeated Al Gore in a “slow burn” contested state recount in Florida, was a crescendo of post-election anxiety building to a December 12 conclusion with a US Supreme Court decision in favor of George Bush.
Examining the current US 2020 presidential election, marked by a “slow burn” narrow win by Joe Biden and ongoing state contests of the results by Donald Trump, through the lens of the Cboe Russell 2000 Volatility Index (RVX) helps shed light on the relative anxiousness of US investors.
The RVX, which measures perceived US small-cap equity market volatility as evidenced by Russell 2000 index-based options activity, spiked to 40+ closing levels in the days leading up to election night, only to trend downward in the days after the election as more certainty of Biden’s ultimate win creeped into the US news cycle and investment market flows.
Additionally, according to data from CME Group, investors drove record volume in futures based on the Russell 2000 Index on election night and the immediate days following it.
Mark Barnes, head of Americas investment research, FTSE Russell:
“Our recent US Presidential elections, and historic US elections, are often inflection points where investor anxieties become focused and acute. Utilizing market indexes, analytics and tools from FTSE Russell our index derivative partners help investors gain better perspective so they can be prepared to pursue market upside and manage market risk in times of market stress and change.”
For more information on the US small-cap Russell 2000® Index, go to the FTSE Russell website.
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